Editing IPCC:AR6/WGIII/Chapter-13 (section)

==== 13.6.3.6 Removal of Fossil Fuel Subsidies ====

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Many governments subsidise fossil fuel consumption and/or production through a variety of mechanisms ( [[#Burniaux--2014|Burniaux and Chateau 2014]] ) (Figure 13.5). Different approaches exist to defining the scope and estimating the magnitude of fossil fuel subsidies ( [[#Koplow--2018|Koplow 2018]] ), and all involve estimates, so the magnitudes are uncertain. Rationalising inefficient fossil fuel subsidies is one of the indicators to measure progress toward Sustainable Development Goal 12: Ensure sustainable consumption and production patterns ( [[#UNEP--2019a|UNEP 2019a]] ).

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'''Figure 13.5 | Total fossil fuel subsidies, 2010–2019, in USD billion (USD2021 for IMF, USD2019 for others).''' Source: data from [[#OECD--2020|OECD (2020)]] (43 countries, mainly production subsidies), [[#IEA--2020|IEA (2020)]] (40 countries, mainly consumption subsidies), IMF ( [[#Parry--2021|Parry et al. 2021]] ''';''' explicit subsidies for all countries).

Consumption subsidies represent approximately 70% of the total. Most of the subsidies go to petroleum, which accounts for roughly 50% of the consumption subsidies and 75% of the production subsidies ( [[#IEA--2020|IEA 2020]] ; [[#OECD--2020|OECD 2020]] ). Much of the variation in the consumption subsidies is due to fluctuations in the world price of oil which is used as the reference price.

Reducing fossil fuel subsidies would lower CO 2 emissions, increase government revenues ( [[#Jakob--2015|Jakob et al. 2015]] ; [[#Dennis--2016|Dennis 2016]] ; [[#Gass--2017|Gass and Echeverria 2017]] ; [[#Rentschler--2017|Rentschler and Bazilian 2017]] ; [[#Monasterolo--2019|Monasterolo and Raberto 2019]] ), improve macroeconomic performance ( [[#Monasterolo--2019|Monasterolo and Raberto 2019]] ), and yield other environmental and sustainable development benefits ( ''robust evidence'' , ''medium agreement'' ) ( [[#Jakob--2015|Jakob et al. 2015]] ; [[#Rentschler--2017|Rentschler and Bazilian 2017]] ; [[#Solarin--2020|Solarin 2020]] ). The benefits of gasoline subsidies in developing countries accrue mainly to higher income groups, so subsidy reduction usually will reduce inequality ( [[#Coady--2015|Coady et al. 2015]] ; [[#Dennis--2016|Dennis 2016]] ; [[#Monasterolo--2019|Monasterolo and Raberto 2019]] ; [[#Labeaga--2021|Labeaga et al. 2021]] ). Some subsidies, like tiered electricity rates, benefit low-income groups. Reductions of broad subsidies lead to price increases for fuels, electricity, transport, food and other goods and services that adversely affect the most economically vulnerable ( [[#Coady--2015|Coady et al. 2015]] ; [[#Zeng--2016|Zeng and Chen 2016]] ; [[#Rentschler--2017|Rentschler and Bazilian 2017]] ). Distributing some of the revenue saved can mitigate the adverse economic impacts on low-income groups ( [[#Dennis--2016|Dennis 2016]] ; [[#Zeng--2016|Zeng and Chen 2016]] ; [[#Labeaga--2021|Labeaga et al. 2021]] ; [[#Schaffitzel--2020|Schaffitzel et al. 2020]] ).

The emissions reduction that could be achieved from fossil fuel subsidy removal depends on the specific context such as magnitude and nature of subsidies, energy prices and demand elasticities, and how the fiscal savings from reduced subsidies are used. Modelling studies of global fossil fuel subsidy removal result in projected emission reductions of between 1% and 10% by 2030 ( [[#Delpiazzo--2015|Delpiazzo et al. 2015]] ; [[#IEA--2015|IEA 2015]] ; [[#Jewell--2018|Jewell et al. 2018]] ; [[#IISD--2019|IISD 2019]] ) and between 6.4% and 8.2% by 2050 ( [[#Schwanitz--2014|Schwanitz et al. 2014]] ; [[#Burniaux--2014|Burniaux and Chateau 2014]] ).

An extensive literature documents the difficulties of phasing out fossil fuel subsidies ( [[#Schmidt--2017|Schmidt et al. 2017]] ; [[#Gass--2017|Gass and Echeverria 2017]] ; [[#Skovgaard--2018|Skovgaard and van Asselt 2018]] ; [[#Kyle--2018|Kyle 2018]] ; [[#Perry--2020|Perry 2020]] ; [[#Gençsü--2020|Gençsü et al. 2020]] ). Fossil fuel industries lobby to maintain producer subsidies and consumers protest if they are adversely affected by subsidy reductions ( [[#Fouquet--2016|Fouquet 2016]] ; [[#Coxhead--2018|Coxhead and Grainger 2018]] ). Yemen (2005 and 2014), Cameroon (2008), Bolivia (2010), Nigeria (2012), Ecuador (2019) all abandoned subsidy reform attempts following public protests ( [[#Rentschler--2017|Rentschler and Bazilian 2017]] ; [[#Mahdavi--2020|Mahdavi et al. 2020]] ). Indonesia is an example where fossil fuel subsidy removal was successful, helped by social assistance programmes and a communication effort about the benefits of reform ( [[#Chelminski--2018|Chelminski 2018]] ; [[#Burke--2018|Burke and Kurniawati 2018]] ). To-date instances of fossil fuel subsidy reform or removal have been driven largely by national fiscal and economic considerations ( [[#Skovgaard--2019|Skovgaard and van Asselt 2019]] ).

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