Fossil Subsidy Reform, Fuel Tax Could Cut 10.5 Billion Tonnes of Emissions by 2030

Reforming fossil fuel consumption subsidies, introducing a modest fuel tax, and directing some of the savings to energy efficiency and renewable energy would reduce global greenhouse gas emissions by nearly 10½ billion tonnes—the equivalent of 2,000 coal plants—by 2030, the International Institute for Sustainable Development reports in an analysis released last week.

In a more modest scenario, just addressing consumption subsidies would cut emissions by nearly 5½ billion tonnes and save 32 countries nearly US$3 trillion this decade, the Winnipeg-based think tank says in a release.

Subsidy reform would reduce the countries’ national emissions by an average of 6%, while the full suite of measures would deliver a 12% cut. Subsidy reform alone would be enough to cut emissions by more than 20% in countries like Venezuela, Iraq, and Algeria.

“As governments urgently look for ways to ramp up ambition on climate action and green recovery, fossil fuel subsidy reform is a powerful tool that can both lower emissions and help finance the energy transition,” said lead author and IISD Policy Analyst Jonas Kuehl. “So is the taxation of fossil energy. Yet only a handful of countries are taking advantage of these options.”

“Looking at Nationally Determined Contributions (NDCs) under the Paris Agreement, far more countries have committed to increasing subsidies to renewable energy than reforming subsidies to fossil fuels,” added co-author and IISD Transitions Lead Philip Gass. “But the benefits of renewable energy subsidies can be cancelled out if countries continue to support fossil fuels at the same time.”

Today’s subsidy structures “undermine efforts to mitigate climate change by artificially lowering the price of fossil fuels, thereby encouraging the consumption of fossil energy and making fossil fuel investments more competitive compared to investments in low-carbon alternatives, such as renewables or electric vehicles,” IISD states. But while higher prices “have overall economic and climate benefits, they also can have negative social impacts, which governments should mitigate through targeted programs to protect the vulnerable.”