Fossil fuel subsidies contribute toward climate change by depressing the price of fossil fuels and thereby encouraging greater production and consumption – and thus carbon emissions. Research estimates that the removal of all fossil fuel subsidies would lead to a global decrease in carbon emissions of between 6.4–8.2 per cent by 2050. Country-level research undertaken for the Nordic Council of Ministers across 20 countries prior to the Paris Agreement found a national average of 11 per cent reduction by 2020, rising to an average 18 per cent reduction combined with a SWAP of 30 per cent of savings toward renewable energy and energy efficiency.
It is estimated that with the combination of fiscal instruments applied to fossil fuels (i.e., subsidy reform and appropriate taxation) global emissions reductions could improve further still to a 20 per cent reduction. Data over the last 30 years suggests that, had we switched off government subsidies to fossil fuels, global emissions would have been more than a third lower than they actually were in 2010.
Therefore, this report Making the Switch From Fossil Fuel Subsidies to Sustainable Energy outlines how governments need to switch off subsidies to oil, gas and coal, but also need to switch on massive investments into renewables and energy efficiency and other more productive investments such as targeted cash safety nets for the poor or for health and education. Countries need to make a SWAP. Nordic countries have started this shift away from fossil fuel subsidies and toward government support to heat pumps as in Sweden, electric cars as in Norway and wind power in Denmark.
A SWAP is where countries undergo fossil fuel subsidy reform and allocate some of the resulting savings toward sustainable energy and development. It is a huge and desperately needed idea in an age of scarce resources and a planet undergoing climate change. One example would be gradual removal of diesel subsidies with a parallel investment into solar agriculture pumps that can replace expensive diesel ones; a removal of gas subsidies alongside a huge investment into industrial energy efficiency; reform of coal subsidies with a shift of savings and support toward renewable energy; or a removal of gasoline subsidies and investment in building targeted national safety net schemes. Countries such as Ethiopia, The Philippines, Peru, and Morocco have started to make this shift.
This report also outlines SWAPs for four countries that are all currently undergoing reform: Bangladesh, Indonesia, Morocco and Zambia. Such a SWAP is needed for all economies, and SWAP suggestions for China and the United States are also included with a focus of savings moved toward a just transition and energy efficiency.