Paris, 4 December 2015 – Experts from international organisations, national governments and civil society gathered at a side-event of the UNFCCC COP21 to discuss how fiscal policies, in particular fossil fuel subsidy reform, can mobilize resources for green investment and shift behaviour to support climate objectives.
The side event “Fiscal policies for a low carbon and inclusive green economy: the role of fossil fuel subsidy reform” brought together around 60 participants to share experiences with fossil fuel subsidy reform in the context of Intended Nationally Determined Contributions (INDCs), discuss remaining challenges and the way forward.
The event - organised by the Green Fiscal Policy Network, a partnership between UNEP, the International Monetary Fund (IMF), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) - was opened by Ligia Noronha, Director of UNEP’s Division of Technology, Industry and Economics, who set out how fiscal policy reforms can drive a low carbon, inclusive green economy.
There is particular scope for action on fossil fuel subsidy reform. A presentation by Ian Parry, Principal Environmental Fiscal Policy Expert in the Fiscal Affairs Department of the IMF, highlighted the significant scale of fossil fuel subsidies globally, which according to the IMF are estimated at USD 5.3 trillion in 2015 when negative (social and environmental) externalities are taken into account.
Mr Parry also pointed to the substantial benefits of reforming such subsidies, which according to recent research by the IMF would raise government revenue by USD 2.9 trillion, reduce global CO2emissions by more than 20 per cent, and reduce premature air pollution related deaths by 55 per cent, thus highlighting how reform is in countries own interest.
Lessons from the German experience, with phasing out subsidies for lignite and how to cope with the negative social impacts of such reform, were elaborated in a presentation by Franzjosef Schafhausen, Director General, Climate Change Policy, Europe and International Affairs of the BMUB.
Mr Schafhausen also highlighted the importance of cooperation at the European Union and international level when moving forward on a low carbon emissions pathway, noting initiatives such as the Green Fiscal Policy Network and the Friends of Fossil Fuel Subsidy Reform.
The presentations were followed by a high-level panel discussion on lessons learnt from experiences with fossil fuel subsidy reform. Panellists included Andrea Meza, Director of Climate Change, Ministry of Environment and Energy, Costa Rica; Paul Mbuthi, Principal Renewable Energy Officer, Ministry of Energy & Petroleum, Kenya and Laura Merrill, Senior Researcher, Global Subsidies Initiative of the International Institute for Sustainable Development (IISD).
Discussions focused on how to better integrate fiscal policies and fossil fuel subsidy reform in the INDCs and overcome obstacles to reform. Panellists noted that although some countries, such as Kenya and Morocco, have incorporated fossil fuel subsidy reform in their INDCs there remains scope for further action, particularly given the potential contribution of fossil fuel subsidy reform to GHG emission reduction targets. The panel highlighted how fossil fuel subsidies, in particular for diesel and gasoline, benefit the rich rather than the poor and discussed some of the options available to compensate negative social effects of reform. The importance of accurate data and better understanding of the impacts of current policies, the need to demonstrate benefits of subsidy reform (fiscal, environmental, poverty), build cross-sectoral alliances, get the prices right and strategically invest savings from subsidy reform were among the issues highlighted in the discussion as important for overcoming obstacles to the process.
There is growing recognition of the role of fiscal instruments in supporting action on climate change. A number of countries have introduced initiatives in this area from carbon pricing mechanisms to the reform of fossil fuel subsidies. Some countries have included references to fiscal instruments in their INDCs and the adopted Paris Agreement recognises the importance of providing incentives for emission reduction through tools such as domestic policies and carbon pricing. Despite this growing momentum, fiscal measures, in particular fossil fuel subsidy reform, have not yet been fully integrated in the INDCs and there remains scope for further efforts to ensure fiscal measures are better reflected in future efforts to take forward global commitments adopted in Paris.
For further information on the event, please click here.
For further information on UNEP’s work on green fiscal policy, please click here.
Additional reading
Special issue note on Fiscal Policy for Climate Change
Policy brief on Fossil Fuel Subsidies and Green Economy
Policy brief on Fiscal Policy for Green Economy
Fiscal Policy Country Study Summaries: Ghana, Kenya, Mauritius, Mozambique
