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Source: Small Island Developing States

May 2019: The UN Environment Programme (UNEP) has published a report that details the first internationally agreed methodology to help countries increase transparency on fossil fuel subsidies.The report titled, ‘Measuring Fossil Fuel Subsidies in the Context of the SDGs,’ describes current practices of monitoring fossil fuel subsidies and provides methodological guidance for measuring fossil fuel subsidies in the context of SDG indicator 12.c.1, (amount of fossil fuel subsidies per unit of GDP (production and consumption) and as a proportion of total national expenditure on fossil fuels).

Previously, fossil fuel subsidy reform has been hindered by a lack of consistent and comprehensive data, as well as by the absence of a common definition and understanding of fossil fuel subsidies.

The proposed methodology divides fossil fuel subsidies into four categories that were examined against data availability, complexity and acceptance:

  • direct transfer of funds, such as payments by governments to individual recipients;
  • induced transfers or energy prices regulated by government;
  • tax expenditure, other forgone revenue, and underpricing goods and services, such as tax reductions, allowances, rebates or credits; and
  • risk transfers, that is direct government involvement in the fossil fuel industry through risk taking on behalf of the industry.

The methodology recommends, inter alia: a phased approach on direct transfer, moving gradually from global to national datasets; reporting against tax expenditure in a progressive manner; and developing guidance on measuring and monitoring specific types of subsidies in existing statistical frameworks to facilitate national reporting, and avoiding double counting. The report also calls for, among other things: capacity building for statistical agencies and sectoral institutions on identifying and measuring subsidies; building up an international database that combines information from different sources and includes data on prices and taxes; and further refining the methodologies for risk transfers and tax expenditures through research based on existing practice.

Fossil fuel subsidy reform is crucial for achieving the SDGs. Fossil fuel subsidies drain national budgets, were estimated at around USD 425 billion, and total 3.5 times more than required financing to meet SDG targets related to social protection, universal health and education.The report explains that removing such subsidies can shift consumer and business behavior towards greater sustainability, and that subsidy reform must be accompanied by targeted social protection measures to mitigate impacts on vulnerable groups and raising awareness regarding the need to end subsidies.

The report details linkages to other SDGs. For example, fossil fuel subsidies disproportionately benefit wealthier households and do not reach the poorest households; thus, subsidy reforms in combination with targeted social welfare programmes can better address poverty and help achieve SDG 1 (no poverty). The report explains that removing subsidies and taxing fossil fuels could reduce global air pollution, helping to achieve SDG 3 (good health and wellbeing). On SDG 5 (gender equality), the report suggests that often women do not benefit from subsidies, and that social welfare programmes and targeted cash transfer can help empower women. Related to SDG 7 (affordable and clean energy), fossil fuel subsidies can hinder the uptake of new low-carbon technologies and increase the risk of creating stranded assets. Subsidy reform could also lead to significant emission reductions and help achieve SDG 13 (climate action).

The report was launched on 14 March 2019 in Geneva, Switzerland, during an event organized by the Friends of Fossil Fuel Subsidy Reform. It was prepared by UNEP, in collaboration with the International Institute for Sustainable Development’s (IISD) Global Subsidies Initiative (GSI) and the Organisation for Economic Co-operation and Development (OECD. [Measuring Fossil Fuel Subsidies in the Context of the SDGs] [Publication Landing Page] [IISD Blog Post]

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