Fossil fuel subsidies undercut the international community’s Sustainable Development Goals and climate change objectives in many ways. Estimated at several hundred billion dollars per year, such subsidies also affect fossil fuel prices, and, therefore, such subsidies can have distorting impacts on trade and investment.
The World Trade Organization (WTO), which has a central role in disciplining trade-distorting subsidies across sectors, is an obvious candidate for advancing fossil fuel subsidy reform internationally. However, its engagement on this topic has been limited. Indeed, while a growing body of disputes on renewable energy support measures has been brought before the WTO, members have yet to initiate legal proceedings against subsidies for oil, gas or coal.
The article analyses the compatibility of four selected fossil fuel support measures in the Group of 20 (G20) countries with the WTO’s 1994 Agreement on Subsidies and Countervailing Measures. The authors identify some of the key legal questions and challenges faced at the WTO. The findings highlight the difficulty of litigating fossil fuel consumption subsidies.
The article identifies five complementary avenues that for reform of international trade policy to enable countries to better address fossil fuel subsidies. They are:
- Promoting technical assistance and capacity building.
- Enhancing transparency.
- Pledging subsidy reform, and ensuring credible follow-up through reporting and review.
- Adopting a political declaration.
- Expanding the category of prohibited subsidies.
Some of these options could be pioneered by one or several WTO members, or through regional, mega-regional, or plurilateral trade agreements.