Foreword
As governments design measures to stimulate economies decimated by the COVID-19 crisis, they have a major opportunity to pursue a sustainable, inclusive recovery aligned with long-term goals to reduce greenhouse gas emissions. As well as investing in low-carbon energy, that means reviewing fossil-fuel subsidies, which not only encourage wasteful consumption but also often serve poorly their purported social goals of increasing energy access and affordability. Historically low energy prices resulting from the slump in economic activity provide a welcome chance to reform energy pricing, including fossil-fuel support.
There is little evidence, however, that governments are using COVID-19 recovery efforts and current market conditions as a spur for fossil-fuel subsidy reform. Many countries are funneling the bulk of stimulus funding to support fossil-fuel and related industries, often with no climate change or pollution reduction requirements attached. Without further conditions on support or focus on “green” recovery measures, we will miss the opportunity to “build back better”. Support for fossil-fuel producers was already rising in 2019, with the latest OECD Inventory of Support Measures for Fossil Fuels registering a 30% increase in direct and indirect support for the production of fossil fuels, primarily in OECD countries. This increase drove a rise in total support to USD 178 billion.
Backsliding on support for fossil fuels demonstrates a concerning disconnect with the increasingly pressing climate emergency. It also underscores the need for ongoing efforts to enhance transparency on the many ways that governments continue to encourage fossil-fuel production and use. Supporting economies and societies through the COVID-19 crisis has to be a priority. But it need not entail a strengthening of support for polluting technologies.
The OECD Inventory identifies, measure by measure, the ways in which 50 OECD, G20 and European Union Eastern Partnership economies provide direct budgetary support or tax expenditures in favour of fossil fuels, documenting over 1 300 policies. In this way, the OECD provides a platform to help governments evaluate how scarce budgetary resources are prioritised and allocated – particularly relevant as the COVID-19-induced recession increases pressure on government budgets – and the coherence of spending with broader environmental and well-being goals. When combined OECD-IEA estimates are taken into account, fossil-fuel support adds up to USD 468 billion across 81 economies representing 90% of global total primary energy supply.
Fortunately, there is continued momentum to enhance transparency of support for fossil-fuel subsidies in other international fora, which is crucial for spreading best practices and sound policy-making. G20 economies continue to demonstrate leadership by stepping up to undertake peer reviews of support for fossil fuels – traditionally chaired by the OECD – with Argentina, Canada, France and India in the pipeline. New Zealand is seeking to reinvigorate momentum in the APEC fossil-fuel support reform agenda during its 2021 host year. Country reporting on fossil-fuel subsidies in the context of the UN Sustainable Development Goals indicator framework is due to start imminently. Direct reporting by countries will encourage the development of national inventories of subsidies and enhance awareness within and among countries of both the magnitude and nature of support.
Building on this momentum, this report proposes a novel methodology for a robust sequential approach to designing fossil-fuel subsidy reforms in OECD and G20 economies, to accelerate and enable greater traction in reform. The OECD stands ready to further support countries in reform, to help ensure sustainable consumption and production, boost resilience to future economic shocks and build more environmentally sustainable economies.