Jakob Skovgaard (Lund University) & Harro van Asselt (University of Eastern Finland and Stockholm Environment Institute)

Fossil fuel subsidies increasingly attract attention in both academic and policy circles. However, while existing research offers insights into the economic and environmental consequences of these subsidies, the associated political aspects have received insufficient scrutiny. Studying the political causes, consequences and normative implications of fossil fuel subsidies and the emerging efforts to reform them is crucial for understanding such subsidies and their reform.

Lund University and the Stockholm Environment Institute (SEI) convened a workshop on “The Politics of Fossil Fuel Subsidies and Their Reform” 16-17 June 2015 at SEI Stockholm, convening experts working on fossil fuel subsidies in order to help address these gaps and establish a coherent overview of their research endeavours.

The workshop led to the following key insights:

  1. There is international consensus to reform fossil fuel subsidies, but no agreement on what fossil fuel subsidies actually are.

Observers may have noticed radically different estimates of aggregate fossil fuel subsidies. The latest estimate from the International Monetary Fund (IMF), for example, puts them at US$4.9 trillion in 2013 (6.5% of global GDP), while the International Energy Agency (IEA) says they amounted to US$493 billion in 2014.

What explains this tenfold difference? Quite simply, they are counting different things, using different definitions. And the definition of subsidies affects not only the numbers, but also which countries are found to have subsidies, and what policy interventions would be needed to address them.

Agreeing on a shared definition of fossil fuel subsidies is itself a political challenge. It is one thing to agree that “subsidies” as a concept are undesirable; it is another to double the price of petrol back home, or end support to an industry that employs thousands of people. Countries are likely to define subsidies in such a way that their subsidies are excluded.

There is a need to analyse these different approaches, the values that underpin them, and the policy implications of each approach.

  1. We are starting to understand why and how fossil fuel subsidy reform works, but we still do not understand why sometimes it does not work.

There is a growing body of knowledge on fossil fuel subsidy reform. We know, for example, that “safety nets” can be useful to buffer the impact of higher energy costs on the poor. We know governments need to make a compelling case for reform, and reinvest the funds in ways that benefit all of society, through improved infrastructure, new social programmes, and expanded energy access.

Yet at our workshop, we also heard about multiple cases of countries that have not embarked on fossil fuel subsidy reform or which undertook reforms that were successful at first, but more recently have run into problems.

A key insight from these case studies is that fossil fuel subsidy reforms seldom occur in an ideal setting. Many of the countries attempting them lack the necessary institutional capacity; many have widespread poverty and unemployment; some have serious security problems. Even the industrialized countries that have attempted fossil fuel subsidy reform have faced serious challenges.

  1. Fossil fuel subsidies are not (just) a climate change issue.

Reforming fossil fuel subsidies can lead to significant climate benefits. However, at the international level, it has not been the United Nations Framework Convention on Climate Change (UNFCCC) leading the reform effort, but rather economic institutions such as the IMF, the G20, the Organisation for Economic Co-operation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC).

What are the consequences of fossil fuel subsidies being addressed by international economic institutions? The national case studies presented at our workshop suggest that successful reforms have been undertaken mainly due to fiscal or macro-economic concerns, with environmental concerns playing a very limited role at best. Still, environmental concerns can help build the case for an international norm that fossil fuel subsidies should be reformed.

New Research Venues

The discussions at the workshop identified several important directions for future research. First, participants stressed the importance of looking at unsuccessful cases of fossil fuel subsidy reform. While studies of unsuccessful cases were presented at the workshop, the presentations – and even more so the literature in general – have a bias towards focusing on successful cases. Second, discussions also focused on how to define and measure successful reform, more specifically whether increases in politically determined prices can be considered successful reform, or if this requires a complete removal of the policy in question. Third, a reoccurring theme was the relationship between production and consumption subsidies, both the tendency of some (mainly developed country) actors to focus solely on consumption subsidies and the more theoretical question of whether this distinction is useful at all.

Further Information

A list of participants and agenda of the meeting can be found here. Papers presented at the workshop will be published as an edited volume with a top university publisher. This workshop convened by Lund University and the Stockholm Environment Institute (SEI) on “The Politics of Fossil Fuel Subsidies”, brought leading experts on fossil fuel subsidies from academia, think tanks and International Organizations together in Stockholm 16-17 June 2016. The workshop was funded by the project “International Economic Institutions and Domestic Actors in the Climate Regime Complex” (funded by the Swedish Research Council, the Bank of Sweden Tercentenary Foundation and the Swedish Research Council Formas) and the SEI Initiative on Fossil Fuels and Climate Change, and was endorsed by INOGOV.

 

Photo credit: World Bank/Flickr

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