International Institute for Sustainable Development ? Global Subsidies Initiative (Lead Organiser)
Swiss Government (SECO)
New Zealand Government (Ministry of Foreign Affairs and Trade)
United Nations Environment Programme

Fossil-fuel subsidies represent inefficient use of public funds, encourage wasteful energy consumption and deter investments in a low-carbon economy. Both G-20 and APEC nations are committed to undertake reform, and the draft UNCSD negotiating text includes commitments to reform subsidies. But recent attempts to phase out fossil-fuel subsidies by the governments of Indonesia, Iran, Nigeria and some other countries have stumbled over significant political barriers. This session aims to foster an open and constructive discussion among all stakeholders on the practical and political barriers to fossil-fuel subsidy reform and how they can be overcome. The session will include perspectives from government officials from both developed and developing countries, industry associations, trade unions, social and labour political activists and civil society organisations.

IISD?s vision is that UNCSD/ Rio+20 should focus on a few high-impact initiatives that will help create the enabling framework for sustainable development. Rio+20 participants? pledge to phase out fossil-fuel subsidies can be one such initiative. It will free up valuable fiscal resources that can be redirected to fund other sustainable development priorities, provide the opportunity to introduce more targeted measures to support low-income households, reduce greenhouse gas emissions and help incentivize investments in renewable energy.

From a sustainable development perspective, there are convincing rationales for reforming fossil-fuel subsidies:

? Fossil-fuel subsidies are costly, amounting to US$409 billion in 2010 (International Energy Agency (IEA), 2011). In addition, the OECD estimates that subsidies for fossil-fuel production and consumption in its member countries cost US$45-75 billion annually (OECD, 2011). Globally, producer subsidies are estimated by the GSI to be at least US$100 billion annually (GSI, 2010).
? Phasing out fossil-fuel subsidies would reduce growth in global energy demand by 4.1% and carbon dioxide emissions by 4.7% by 2020 (IEA, 2011). Fossil-fuel subsidies create incentives for higher levels of consumption, which in turn produce more local and global pollutants on behalf of both industry and consumers.
? Fossil-fuel subsidies are socially regressive; the IEA estimates that only 8% of the US$409 billion spent subsidizing fossil-fuel consumption went to the poorest 20% of the population. While fossil-fuel subsidies are often designed for the interests of poorer populations, they typically benefit medium- to high-income households or lead to diversion.

Both G-20 and APEC countries have committed to phase out inefficient fossil-fuel subsidies that encourage wasteful consumption. However, actual progress on fulfilling these commitments has been slow. Beyond G-20 and APEC, only a few developing countries, including Iran and Ethiopia, have recently succeeded in phasing out a considerable amount of their fossil fuel subsidies.

From a political economy perspective, reforming fossil-fuel subsidies is challenging. If introduced too quickly, and without sufficient public support, a spike in fuel prices can have serious political repercussions. Moreover, there are concerns about negative effects on the competitiveness of domestic energy-intensive industries. Recent events in Nigeria, in which the withdrawal of fuel subsidies sparked public unrest, and significant political barriers to fossil fuel subsidy reform in countries such as Indonesia and Bolivia demonstrate the need for a comprehensive strategy. Elements of such a strategy should include investment in alternative fuels or transport options, putting in place welfare measures to shield the poor and vulnerable from higher fuel prices, establishing independent pricing mechanisms, and rolling out information campaigns to build public awareness and support.

In organizing the side-event, IISD aims to add value to the UNCSD negotiating process and assist countries implement the commitments signed in Rio, by opening a discussion on the political barriers to fossil-fuel subsidy reform and ways to overcome these challenges. The debate will be structured around interventions from the following speakers:
? Representatives of Friends of Fossil Fuel Subsidy Reform group of countries (Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden and Switzerland) and other government officials from both developed and developing countries
? Representatives of industry associations, including B-20
? Representatives of trade unions, social and labour political activists
? Representative of the Global Subsidies Initiative of the International Institute for Sustainable Development
? Representatives of civil society organizations, including anti-corruption groups.

The Rio+20 zero-draft negotiating text includes the commitment to reform subsidies that undermine sustainable development, and in particular subsidies for fossil fuels. IISD has been working with supportive Governments to strengthen the negotiating text, building upon existing international commitments of the G-20 and APEC countries. The IISD?s blueprint for an effective commitment on subsidy reform was formally submitted to the UNCSD Secretariat in November 2011, which was supported in total by 24 civil society organizations. The submission proposes that countries participating in Rio+20 pledge to:
1. Phase out fossil-fuel subsidies that undermine sustainable development, including not only consumer subsidies, but also, importantly, producer subsidies;
2. Assist other countries to phase out fossil-fuel subsidies that undermine sustainable development.

Further, implementation of the pledges should be considerably strengthened by the adoption of supporting measures:
? Transparent, annual reporting and review
? Technical and financial assistance for developing countries
? Common research and analysis
? Secretariat support

For more details, the Pledge (as submitted to the UNCSD) and supporting documents can be downloaded on the GSI?s website: http://www.iisd.org/gsi/gsi-policy-brief-high-impact-initiative-rio20-pledge-phase-out-fossil-fuel-subsidies