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Subsidy reform gaining momentum in the UNFCCC framework

circle-oilGiven its long history of grappling with the contentious issue of subsidies, and explicit framework for a system of subsidy disciplines, notifications and dispute resolution, it is not surprising that academics, policymakers and commentators with an interest in fossil fuel subsidies have, over the last decade, spent a great deal of time and intellectual energy examining the WTO/international trade framework to explore opportunities for adopting existing trade measures and mechanisms to curb ever-increasing levels of government support for fossil fuel production and consumption.

It has been long recognised however, that the WTO (and in particular, Agreement on Subsidies and Countervailing Measures) is not the only game in town.

As COP 21 in Paris rapidly approaches, attention is turning to opportunities within the UNFCCC framework to encourage and coordinate fossil fuel subsidy reform.

One avenue, advocated by the New Zealand-led Friends of Fossil Fuel Subsidy Reform is the proposal that UNFCCC member-states regularly and methodically report fossil fuel subsidies as part of their National Communications under the Convention. That proposal would extend the scope of reporting on fossil fuel subsidies: already under development within the G20 (proposed peer review methodology under negotiation) and APEC to a much wider group of nations.

Another avenue is the explicit incorporation of commitments to curb fossil fuel subsidies within the process of filing climate change mitigation (and in some cases, adaptation) commitments through the Intended Nationally Determined Contributions, or INDCs.

In early June 2015, the northern African state of Morocco, which presently imports around 90% of its energy, took a widely applauded and ground-breaking step by including in its INDC (PDF) a commitment to substantially reduce fossil fuel subsidies “building on reforms already undertaken in recent years”.

As noted by IISD’s Laura Merrill and Frédéric Gagnon-Lebrun:

A number of countries are now considering the inclusion of fossil fuel subsidy reform as part of a package of fiscal instruments and policy tools at government’s disposal to meet nationally proposed emission reduction targets. Beyond fossil fuel subsidy reform, Mexico have included pricing of carbon in their INDC to address the environmental externalities of energy use.

The practical and legal effect Morocco’s inclusion of a reference to fossil fuel subsidies in its INDC should not be overstated. Its commitment does not amount to the acceptance of a legally binding obligation. Nor does the brief reference to fossil fuel subsidy reform include details of how the reform process will be undertaken, timing, scope and extent.

Nevertheless, this step by Morocco provides an additional degree of impetus and encouragement for similar actions by other countries.

It also confirms, if this were necessary, the remarkable development of fossil fuel subsidy reform as an issue that in the past may have been the domain of a narrow group of specialist economists and international trade practitioners, but is quickly becoming one of the key components of climate change mitigation strategies for many countries around the world.

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