Calls to swap fossil fuel subsidies to boost green transition

Could decrease CO2 emissions by up to 10% by 2030

RE-ALLOCATING 10–30% of fossil fuel subsidies could fund a global green energy transition, says the International Institute for Sustainable Development (IISD).

In 2009, G20 nations pledged to phase out fossil fuel subsidies but so far, little progress has been made. Subsidies are generally defined as government financial support for those buying fuel or the companies producing it, and can also take the form of reduced tax rates. Subsidies can comprise a large proportion of government budgets, particularly if oil prices are high. Globally, around US$372bn is spent on subsidising fossil fuels, compared to US$100bn for renewables. The UK has the highest fossil fuel subsidies in Europe, spending US$13.5bn/y on fossil fuels compared to US$9.3bn/y on renewables.

The IISD report, Fossil Fuel to Clean Energy Subsidy Swaps: How to Pay for an Energy Revolution, outlines the importance of a “subsidy swap”, which would reallocate funds from fossil fuels to renewables. This would lead to emissions reductions, boost the economies, and improve public health. Phasing out global fossil fuel subsidies is estimated to decrease CO₂ emissions by 2.32–10% by 2030, and the International Monetary Fund (IMF) found that subsidy reform could result in an average revenue of 2.6% of GDP globally.

The cost of renewables has been steadily decreasing, and annual investment in renewables has been greater than fossil fuels since 2008. However, more ambitious policy reforms are urgently needed to accelerate the clean energy transition.
Fossil fuel subsidies have fallen overall since 2012, but this isn’t a steady decline as subsidies increased following the rebound in crude oil in 2017. Swaps are already taking place on a global level but the pace isn’t accelerating quickly enough. The report outlines four case studies – India, Indonesia, Zambia, and Morocco – where successful subsidy swaps are already taking place.