Ending fossil fuel subsidies ‘could easily fund clean energy transition’

The report asserts that fossil fuel subsidies – which total $372bn per year, compared to the $100bn of support renewable energy receives – remain a key barrier to the transition to a clean energy system. 

The report suggests a ‘subsidy swap’, where the funds freed up from reforming fossil fuel subsidies are redirected to finance renewable energy, energy efficiency and public transport. 

‘Often fossil fuel subsidies are inefficient, costly to governments and undermine clean alternatives,’ said Richard Bridle, IISD Senior Policy Advisor. ‘All countries should be looking to identify where swaps can kickstart their clean energy transitions.’

The report points to four countries – India, Indonesia, Zambia and Morocco – where governments have already initiated efforts to redirect fossil fuel subsidies. India has cut petroleum subsidies by 75% since 2014, freeing up funds to support the development of its wind and solar industries, while Indonesia has saved approximately $15bn through subsidy reforms, savings which have been reinvested in infrastructure, social programmes and welfare schemes. However, the report suggests that more needs to be done not only to reduce subsidies, but to reallocate them to fund the energy transition.

‘Public money is far better spent delivering the clean energy transition than propping up the fossil fuel industry,’ said Bridle. ‘Currently, there are far more subsidies directed toward fossil fuels than toward supporting renewable energy. The reform of subsidies alone is not enough to meet global emissions targets, but it is a good first step. Ultimately, the cost of each energy source should reflect its social and environmental impacts. That means increasing taxes on dirty energy and redirecting subsidies to align with government priorities.’

At a macro level, financial flows are already changing, says the report – globally, fossil fuel subsidies have fallen and global investments in renewable energy have exceeded investments in fossil fuels since 2008. Renewable global installed capacity additions have exceeded fossil fuel generation since 2014.