5.1 Introduction

The idea of fossil fuel subsidy reform can be considered an ‘international norm’, usually defined as a ‘standard of appropriate behaviour’ (Finnemore and Sikkink Reference Finnemore and Sikkink1998: 891). Norms define what actors ought and ought not to do – respect human rights, for example, or ban chemical weapons. Contrary to binding laws and rules, norms are obeyed not (necessarily) because they are enforced but because they are seen as legitimate and contain a sense of ‘oughtness’ (Florini Reference Florini1996). This description captures fossil fuel subsidy reform quite well, as state support for fossil fuels is increasingly portrayed as deviant from ‘proper’ or ‘appropriate’ behaviour. Lord Nicholas Stern (2015), for example, called low taxes on coal consumption ‘unethical’ because they result in large-scale deaths and damage to others. Similarly, Fatih Birol, now the head of the International Energy Agency (IEA), declared that fossil fuel subsidies ‘do not make sense’ and are ‘public enemy number one’ (cited in Casey Reference Casey2013).

Looking at fossil fuel subsidy reform through the lens of international norms raises two questions. First, international norms are typically the products of advocacy by transnational networks and social movements (Keck and Sikkink Reference Keck and Sikkink1998). The fossil fuel subsidy reform norm, however, did not follow this traditional pattern. Instead, it more or less trickled down from above in 2009, when the leaders of the Group of 20 (G20) pledged to ‘phase out over the medium term inefficient fossil fuel subsidies’ (G20 2009). The very few non-governmental organisations (NGOs) that had worked on the issue were completely taken by surprise by this G20 commitment. How can we account for the top-down emergence of the fossil fuel subsidy reform norm in the absence of a networked international ‘movement’ led by transnational norm entrepreneurs? And why did the norm emerge in the late 2000s, even though the first calls for reform of fossil fuel subsidies can be traced back to the 1980s?

Second, the weak diffusion of the norm of fossil fuel subsidy reform is also puzzling. In spite of the commitment to phase out fossil fuels at the highest possible political level (the leaders of the G20), many states inside and outside the G20 continue to provide lavish support to fossil fuel consumers and, to a lesser extent, producers. Moreover, the issue has been generally overlooked in the international climate change regime (van Asselt and Kulovesi Reference van Asselt and Kulovesi2017; see Chapter 8). The absence of real action within the United Nations Framework Convention on Climate Change (UNFCCC) regime on fossil fuel subsidies is surprising given that fossil fuel subsidies can be regarded as a form of ‘negative climate finance’ (Brende Reference Brende2015) or even an ‘anti-climate policy’ (Compston and Bailey Reference Compston and Bailey2013). An efficient climate policy would first seek to eliminate fossil fuel subsidies and then explore ways to price carbon, yet international efforts have focused primarily on ways to price carbon, arguably putting the cart before the horse.

This chapter seeks to explain the top-down emergence and incomplete diffusion of fossil fuel subsidy reform as an international norm. Our focus lies on the international level. We first trace the long history of multilateral efforts to address fossil fuel subsidies, before interpreting the role of norm entrepreneurs, political opportunity structures and discursive contestation. A key conclusion that emerges from this is that the norm of fossil fuel subsidy reform remains essentially contested. In contrast to the established international consensus over how to define agriculture and fisheries subsidies, no common definition of energy subsidies has emerged, which hinders implementation of the norm. The norm of fossil fuel subsidy reform thus follows a broader pattern, recently identified by constructivist norm scholars, whereby very general norms have weak normative power because they permit a very wide range of interpretations. This often leads to their decay or irrelevance (e.g. Bailey Reference Bailey2008; Hadden and Seybert Reference Hadden and Seybert2016).

5.2 Genesis of the Fossil Fuel Subsidy Reform Norm

How did the norm of fossil fuel subsidy reform emerge? Here we describe the process of how international norms emerge along three stages. In the first stage, a norm is articulated by a set of norm entrepreneurs. In this process of norm building, norm entrepreneurs call attention to issues and set new standards of appropriate behaviour. In the second stage, the norm gets institutionalised in specific sets of international rules and organisations. This happens when norm entrepreneurs convince a critical mass of states (norm leaders) to embrace the new norm. The third stage involves the diffusion of the international norm as the norm leaders attempt to socialise other states to become norm followers.

Our three-staged model is inspired by the seminal work of Finnemore and Sikkink (Reference Finnemore and Sikkink1998), but it also differs from their model because we do not assume that these stages unfold in a strictly sequential manner. Some norms may indeed ‘cascade’ through the international system and eventually reach the stage of internalisation. This is the point where the norm gets a taken-for-granted character and is no longer a matter of broad public debate. For example, few people today would dispute the abolishment of slavery or the immunity for medical personnel during war (Finnemore and Sikkink Reference Finnemore and Sikkink1998). Other norms fare less well and may be subject to backsliding, reinterpretation, replacement and even complete disappearance.

Therefore, rather than seeing the norm of fossil fuel subsidy reform as a concept with a fixed meaning that evolves linearly, we subscribe to the more constructivist position of norms as ‘processes’ or as works in progress that have contested and shifting meanings. Norms are often agreed to in international treaties and organisations precisely because they mean different things to different actors (Wiener Reference Wiener2008; Krook and True Reference Krook and True2010; Bucher Reference Bucher2014). The articulation of the fossil fuel subsidy reform norm (e.g. determining which fossil fuel subsidies are ‘inefficient’) may continue well after the norm has been embraced in an international forum (e.g. the G20). The three stages laid out in the remainder of this section thus should be seen as overlapping and not as strictly separate or sequential.

5.2.3 Norm Diffusion

Over the past few years, numerous countries have initiated fossil fuel subsidy reform to some degree, as documented in various chapters in this book. In 2014 alone, almost 30 countries implemented fossil fuel subsidy reform (Merrill et al. Reference Merrill, Harris, Casier and Bassi2015), including countries such as Ukraine and Saudi Arabia that had no (recent) history of attempted reforms. Whether these reforms will stick if crude oil prices rise again remains to be seen, as there are many historical examples of countries reversing reforms. Yet the impact of the implemented reforms in the wake of the G20 commitment is real and tangible. The IEA has calculated that without the national reforms undertaken since 2009, the value of fossil fuel consumption subsidies would have been 24 per cent higher in 2014, putting the level of these subsidies at USD 610 billion instead of USD 493 billion (IEA 2015: 96–97).

Figure 5.1 shows the cumulative monthly number of initiated reform efforts in the period 2014–15. This figure was compiled using data from the IEA (2015) and the Global Subsidies Initiative. There are four important considerations to keep in mind. First, since the figure counts reform efforts, countries can appear more than once. Iran, for example, raised gasoline prices by 75 per cent in April 2014 and then by another 25 per cent in May 2015. These reforms are counted separately. Second, the figure only counts initiated reform efforts and does not trace whether or not the reforms have been sustained. Third, the figure shows that there is a wave of countries initiating reforms, including large countries such as India, Indonesia, Nigeria and Egypt, which are highlighted on the chart. However, it is hard to tell whether the global pace of fossil fuel subsidy reform has accelerated after 2009 due to the lack of adequate and comparable historical data. International organisations have only recently started to compile databases of fossil fuel subsidies. The IEA’s fossil fuel subsidy database, for example, only goes back to 2012. Fourth, measuring energy subsidies is also hampered by the varying definitions of what constitutes a subsidy and different ways of measuring them. The bulk of subsidy reforms reported here was calculated with the price-gap method (see Chapter 2).

Figure 5.1 A ‘norm cascade’? Initiated fossil fuel subsidy reforms, 2014–15

(Source: Based on data from the Global Subsidies Initiative and the IEA.)

It is clear that fossil fuel subsidies are still widespread, even in many G20 countries. The institutionalisation of the norm of fossil fuel subsidy reform in global forums thus should not be conflated with genuine norm adoption and internalisation (Finnemore and Sikkink Reference Finnemore and Sikkink1998).

5.3 Key Drivers Behind the Fossil Fuel Subsidy Reform Norm

The concept of fossil fuel subsidy reform rarely came up until 2005, but in recent years more than 40 efforts to reform fossil fuel subsidies have been initiated. What explains the emergence of fossil fuel subsidy reform as an international norm? Drawing on recent scholarship on international norms (Wunderlich Reference Wunderlich, Wunderlich and Müller2013), we highlight the role of norm entrepreneurs, political opportunity structures and discursive contestation in shaping the emergence and uneven diffusion of the fossil fuel subsidy reform norm.

5.4 Conclusion

This chapter has examined the drivers behind the development of fossil fuel subsidy reform as an emerging international norm. Our analysis reveals that the initial articulation of the fossil fuel subsidy reform norm can be clearly linked to specific norm entrepreneurs. The anti-subsidies campaign has been backed by an informal coalition of NGOs (most notably the Global Subsidies Initiative, Oil Change International and the World Resources Institute), policymakers (notably the Obama administration) and international organisations and their staff (the IEA, IMF, OECD and World Bank). The Obama administration was probably the most important norm entrepreneur; without its leadership, the norm would have not reached the same level of institutionalisation. The global financial crisis also played a key role in turning the attention of the G20 to fossil fuel subsidy reform.

The norm is also characterised by internal and external contestation and discursive cleavages. Neither the definition of ‘fossil fuel subsidies’, nor the precise meanings of ‘inefficient’ or ‘reform’, have been settled. It has become clear that different alternative framings of the norm coexist, targeting different audiences. Efforts to forge a common definition of fossil fuel subsidies, or a common methodology, among international organisations are likely to falter. However, a division of labour among international organisations may be emerging, such as between the IEA and the OECD, who view their estimates of fossil fuel subsidies as complementary. Such acts of coordination could bring more coherence to the fragmented landscape of international organisations that govern energy subsidies (Van de Graaf and van Asselt Reference Van de Graaf and van Asselt2017).

The availability of more data on fossil fuel subsidies and on how reform strategies can be successfully implemented might in itself spur more countries to enact reforms. To the extent that this happens, the diffusion of the norm of fossil fuel subsidy reform may come to rely less on the mechanism of moral persuasion (a communicative process through which actors convince each other that subsidy reform is ‘the right thing to do’) and more on learning (the experience of others provides new information on the effectiveness of policies, leading to an update of causal beliefs) and emulation (the desire of actors to conform to widespread social practices).

Clearly, the fossil fuel subsidy reform norm has not yet reached the stage of being ‘taken for granted’. While this chapter has described the emergence and uneven diffusion of the norm, it did not assess the causal influence of the international norm on actual domestic policy reforms. If countries reformed fossil fuel subsidies in the 1980s and 1990s without referring to it as such and before the norm emerged in the G20, to which degree are the recent domestic reforms the result of the norm being diffused? Future studies could attempt to parse out the effects of the 2009 pledge on the global level of subsidies. In addition, they could look more closely into the causal mechanisms through which fossil fuel subsidy reform as a (contested) norm influences domestic policy processes; for example, it may empower certain constituencies or shift the framing and content of specific reforms.

These questions show that analysing fossil fuel subsidy reform from an international norm perspective opens up a promising area for governance and policy scholars, one that we believe can yield both valuable theoretical and empirical insights.

Acknowledgements

We are grateful to Laura Merrill, Ron Steenblik and the anonymous reviewers for valuable comments on earlier drafts of this chapter.

6.1 Introduction

Over the last decade, fossil fuel subsidy reform has been rising on the agenda of international economic institutions such as the Group of 20 (G20), the Organisation for Economic Co-operation and Development (OECD), the World Bank and the International Monetary Fund (IMF). International environmental institutions such as the United Nations Framework Convention on Climate Change, by contrast, have been rather silent on the issue (see Chapter 8), with the exception of the United Nations Environmental Programme (UNEP 2015). Simultaneously, fossil fuel subsidies are increasingly debated in a number of countries, often leading – particularly in developing countries – to their reform. The question arises whether this correlation indicates a causal influence from the international economic institutions on domestic policies.

A growing body of literature is seeking to identify the role of different political, economic and social factors in fossil fuel subsidies and their reform (Victor Reference Victor2009; Cheon et al. Reference Cheon, Urpelainen and Lackner2013; Lockwood Reference Lockwood2015). Although studies of individual fossil fuel subsidy reforms point to the role of international economic institutions as one factor among many (Beaton and Lontoh Reference Beaton and Lontoh2010; Lockwood Reference Lockwood2015), there is no cross-country study of the influence of these institutions. This gap deserves to be addressed due to the impact of these institutions on government policy (Vreeland Reference Vreeland2007). An important aspect of the impact of these institutions is how – or, more precisely, through which causal mechanisms – they influence domestic policy. Whether the institutions have influenced domestic policy via socialisation into norms, learning or more coercive mechanisms of influence (Holzinger and Knill Reference Holzinger and Knill2005; Dobbin et al. Reference Dobbin, Simmons and And Garrett2007) is both academically and politically relevant.

To address these issues, this chapter aims to answer the following research questions: (1) through which causal mechanisms did international economic institutions influence domestic decisions regarding fossil fuel subsidies, and (2) to what extent did these institutions drive or shape fossil fuel subsidy reform?

These questions concern the impact of the G20, the IMF, the World Bank and the OECD on national policies defined as fossil fuel subsidies in Denmark, India, Indonesia, the United Kingdom and the United States. The chapter focuses on the mechanisms of influence rather than the institution from which they emerged, including the intervening causal steps of such influence rather than just the initial source (Heinze Reference Heinze2011: 5). Focusing on mechanisms rather than institutions is more politically relevant, since there is more scope to change the mechanism than the institution. It is also easier to identify and compare the effects of different mechanisms than of different institutions, given that each institution operates via several mechanisms and constitutes an element of an institutional complex (Biermann et al. Reference Biermann, Pattberg, van Asselt and Zelli2009), making it difficult to isolate its influence. International organisations are to be understood as constituting one subset of international institutions (Keohane Reference Keohane1989: 3–4).

This chapter first outlines the theoretical framework for studying international influences on domestic policy. It then outlines how this theoretical framework has been operationalised, followed by the application of the framework in the five country cases.

6.2 A Framework for Studying International Influence

This chapter draws on existing frameworks for comparing different mechanisms of influence from the international to the domestic level and identifies three casual mechanisms of influence: ideational, learning and power based (Dobbin et al. Reference Dobbin, Simmons and And Garrett2007; Bernstein and Cashore, Reference Bernstein and Cashore2012). Studying these influences requires a focus on their impact on policy processes and policy debates related to fossil fuel subsidy reform, including the actors within this process and the setting in which they operate (Kingdon Reference Kingdon2003). The chapter focuses on influence on the public and policymaking agendas and on policymakers discussing whether and how to reform fossil fuel subsidies (Kingdon Reference Kingdon2003: 2–3). How fossil fuel subsidy reform is carried out is important for its chances of success (Victor Reference Victor2009; Beaton and Lontoh Reference Beaton and Lontoh2010).

‘Ideational influences’ concern both the room for manoeuvre for actors to influence decision-making and how actors perceive the world. Both kinds of ideational influence may involve the emerging norm of fossil fuel subsidy reform, which draws attention to the issue of fossil fuel subsidies and defines these subsidies as inappropriate (see Chapter 5). The two kinds of ideational influence may also concern the various definitions of fossil fuel subsidies; debates, for instance, can be shaped by the definition that is used to determine whether a country has subsidies (see Chapter 2). The former kind of ideational influence includes influences on the public and policymaking agendas. Reports, statements or commitments by the institutions affecting the placement of fossil fuel subsidies on the public (media) and policymaking (within government, parliamentary committees, etc.) agendas constitute the most relevant instances of influence. Such influence allows actors favouring reform to initiate a debate about whether the country has fossil fuel subsidies and whether they should be reformed. In this way, ideational influence may allow for new framings (e.g. framing a policy as a fossil fuel subsidy), legitimise goals (e.g. to reform fossil fuel subsidies) and associate non-compliance with them with reputational costs.

The ideational influences affecting actors’ perceptions involves policymakers internalising specific goals and beliefs (particularly regarding appropriateness) and taking them for granted (Checkel Reference Checkel2005: 804). It is relevant to focus on whether policymakers have internalised beliefs regarding fossil fuel subsidies, such as the norm of fossil fuel subsidy reform or the more specific belief that a given kind of policy (such as tax exemptions) constitutes a fossil fuel subsidy. This chapter focuses on the institutions influencing policymakers directly, since this is the main channel of interaction between the international institutions and the domestic level.

‘Learning’ is understood as changing beliefs concerning the ‘best’ (generally most efficient or effective) way to achieve an objective based on experience, in this case that of other actors (Dobbin et al. Reference Dobbin, Simmons and And Garrett2007: 460). Unlike ideational influence, learning does not involve changes in actors’ goals or beliefs and ideational structures defining what is appropriate. Here it is pertinent to focus on international institutions actively disseminating best practices (see Lehtonen (Reference Lehtonen2007) regarding the OECD and Seabrooke (Reference Seabrooke2012) regarding the IMF) or acting as forums for peer-based learning (from both successful and unsuccessful reforms) among policymakers (Haas Reference Haas2000).

‘Power-based influences’ may affect the power of those opposed to, or conversely, in favour of fossil fuel subsidy reform. The institutions may alter the power of these actors by imposing direct conditionalities on the states (e.g. IMF or World Bank programmes) or by providing support (e.g. technical assistance) for reform. Such influences may hinder certain actions while empowering or disempowering particular constituencies (Kahler Reference Kahler2000). The power of international economic institutions is well documented, particularly the influence of IMF and World Bank structural adjustment programmes (Vreeland Reference Vreeland2007).

6.3 Methods

The countries studied in this chapter are Denmark, India, Indonesia, the United Kingdom and the United States. These countries have been selected based on their important roles in the international discussions of fossil fuel subsidy reform, yet they vary in terms of experiences with such reform. While the United Kingdom and Denmark have been reluctant to acknowledge that they provide fossil fuel subsidies, the other countries acknowledge their subsidies but have seen varying success on reform. Reform has been very limited in the United States and mixed in Indonesia (pre-2014), but successful reforms have taken place in India and Indonesia (post-2014). Interestingly, while the United Kingdom and Denmark have actively promoted fossil fuel subsidy reform at the international level, India has been outright sceptical of international efforts. Lastly, the countries studied cover both industrialised and emerging economies (but not least-developed countries due to those countries’ smaller share of global fossil fuel subsidies) and G20 members as well as non-G20 members. The focus is on the period following the 2009 G20 commitment on fossil fuel subsidy reform, after which fossil fuel subsidies became intrinsic to the activities of the international economic institutions.

Ideational influence on the public agenda has been operationalised by identifying articles in the two leading newspapers of each country that establish a connection between the international institutions’ activities regarding fossil fuel subsidies and the country in question. Such a connection could include using IMF or OECD estimates of a country’s fossil fuel subsidies when discussing reforming the policies included in those estimates. This number is compared to the total numbers of articles referring to fossil fuel subsidies domestically and internationally. The analysis also focuses on whether domestic actors (e.g. non-governmental organisations) were successful or, conversely, unsuccessful in exploiting the activities of the international institutions to promote subsidy reform.

Learning, power-based influence and ideational influence on the beliefs and goals of actors have been studied through process tracing, relying on a combination of official documents, key informant interviews, second-hand sources and the author’s observations as an official working on the topic. The official documents originate from the governments and institutions in question. The key informants (a total of 22) are primarily senior officials currently or previously responsible for fossil fuel subsidies at finance ministries or other key ministries or agencies in the countries studied, as well as in some cases representatives of the institutions that interact with the country. Since ideational and learning-based influences predominantly take place via direct interaction between officials and the institutions, the informants selected have been central to this interaction, which is why most of them come from finance ministries.

Ideational and learning-based influences on the beliefs and goals of actors can be identified in terms of whether the understandings and framings of key issues inherent to official documents change over time and whether informants point to such changes stemming from the institutions. Power-based influence is identified, first, by identifying whether the institutions had programmes in place that could influence the power of domestic fossil fuel subsidy actors within the country in question and, second, whether key informant interviews and secondary sources show that these programmes indeed influenced decision-making regarding fossil fuel subsidies.

The analysis also explores the degree to which the institutions were influential compared with other factors affecting whether and how countries would reform fossil fuel subsidies.

6.4 International Economic Institutions Addressing Fossil Fuel Subsidy Reform

The efforts of international economic institutions to address fossil fuel subsidies go back decades but were raised to a higher level by the 2009 G20 commitment to ‘phase out and rationalise over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest’ (G20 2009). The commitment resulted in a process, among others, by which the member states report their fossil fuel subsidy reform strategies and timetables. In the reports, it is up to the members to identify which fossil fuel subsidies exist in their own country and how to phase them out. Seven countries (Australia, Brazil, France, Japan, Saudi Arabia, South Africa and the United Kingdom) have claimed to have no inefficient fossil fuel subsidies, whereas other countries have submitted plans for phasing out their subsidies with varying degrees of ambition (Kirton et al. Reference Kirton, Larionova and Bracht2013: 62–69). In 2009, the G20 also asked the World Bank, the OECD, the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries to analyse the scope of fossil fuel subsidies and to provide suggestions for implementing this initiative.

Later, the G20 added the possibility for states to submit their fossil fuel reform strategies to voluntary peer reviews by other G20 members and representatives of international organisations. At the time of writing, the United States and China had completed their peer reviews, while those of Germany and Mexico were in progress.

Crucial to the discussion of whether a country has fossil fuel subsidies is what definition of fossil fuel subsidies is used and the degree to which one focuses on consumption or production subsidies (van Asselt and Skovgaard Reference van Asselt, Skovgaard, Van de Graaf, Sovacool, Ghosh, Kern and Klare2016). Regarding definitions, analysts can use an ‘inventory’ or ‘conferred-benefits’ approach, which focuses on identifying government activities that transfer benefits to specific groups (e.g. consumers of kerosene), or a ‘price-gap’ approach, which focuses on whether prices are below a benchmark price, or a combination thereof (OECD 2010; see Chapter 2). The benchmark price is generally based on the international price of the fuel in question and sometimes also includes transport, distribution, value-added tax and taxes corresponding to the externalities stemming from the fuel (Gerasimchuk Reference Gerasimchuk2014). Regarding producer subsidies (directed at the extraction of fossil fuels) and consumer subsidies (directed at the use of fossil fuels), the latter are concentrated in developing countries, whereas the former are common in both industrialised and developing countries.

Beyond the G20, the OECD addressed fossil fuel subsidies before the G20 commitment as part of their environmental performance reviews of individual member states, studies of pricing policies and general studies. The OECD’s activities created knowledge about fossil fuel subsidies and promoted the norm that fossil fuel subsidies should be reformed (Skovgaard Reference Skovgaard2017). Using a total support estimate approach (fundamentally an inventory approach that also includes price-gap analysis) to identifying fossil fuel subsidies, the OECD Secretariat found fossil fuel ‘support’Footnote ¹ measures in all 34 OECD countries (OECD 2010, 2011). Furthermore, the OECD Secretariat has arranged workshops on fossil fuel subsidies for representatives of its members.

The IMF and the World Bank have both followed a two-pronged approach: they induce states following adjustment programmes to reform their subsidies, and they provide knowledge about and promote fossil fuel subsidy reform. The first approach dates back decades, as the two institutions have promoted the restriction of any kind of subsidy irrespective of its environmental consequences. The second took off after the G20 commitment, especially following the G20’s request to the World Bank and other organisations to analyse fossil fuel subsidies. Importantly, in 2013 and 2015, the IMF published reports using a price-gap approach that included environmental externalities in the benchmark; this approach led to estimates of global fossil fuel subsidies of, respectively, USD 1.9 trillion and 5.3 trillion (Clements et al. Reference Clements, Coady and Fabrizio2013; Coady et al. Reference Coady, Parry, Sears and Shang2015). The IMF’s definition constituted a radical break with the established definitions within international institutions, and as a result of this definition, the IMF estimates are many times higher than the estimates of global subsidies by, for example, the IEA (USD 325 billion in 2015, based on benchmark prices without such externalities; IEA 2016).

6.5 Influencing Domestic Fossil Fuel Subsidies

6.6 Conclusion

Although the correlation between international economic institutions’ promotion of fossil fuel subsidy reform and domestic reform did not amount to the former causing the latter, important causal influences were nonetheless at work. The analysis shows that the three kinds of influence of the international economic institutions varied in importance.

First, the ideational influence on the public agenda was limited, whereas the influence on the policymaking agenda in Denmark and the United Kingdom was significant. Most importantly, the G20 commitment established fossil fuel subsidy reform as a norm that governments had to take seriously. Even India – which was sceptical of the norm, though it did undertake domestic reforms – had to acknowledge the relevance of the norm in its G20 reports. The UK and Danish governments supported the norm but claimed it did not apply to them. But they were pushed by actors exploiting the G20 commitment and the IMF reports to enter into debates about the validity of those claims, and those debates centred on which definition of fossil fuel subsidies was most relevant. These findings underscore the importance of the institutions in promoting the norm of fossil fuel subsidy reform and the importance of definitional questions in domestic norm diffusion (see Chapter 5).

Second, learning mattered in terms of workshops organised by the World Bank and, to a lesser degree, the OECD. These workshops helped change beliefs regarding how to reform fossil fuel subsidies among government officials. In India and Indonesia, learning was important in relation to actual fossil fuel subsidy reform, and it shaped how the reforms were carried out.

Third, power-based influences were relevant only in the case of Indonesia, in which World Bank technical support and, at an earlier stage, an IMF programme were influential in shaping Indonesian fossil fuel reform. A key take-away from this is that international power-based influences can be very important under specific conditions (particularly conditionalities in times of crisis) but that these conditions are relatively rare.

Despite their (predominantly ideational) influence on discussions of fossil fuel subsidies, the economic institutions were not significant causes of fossil fuel subsidy reform (except for reforms in Indonesia in the early 2000s), but they played a significant role in shaping reform in developing countries.

Exploring the scope conditions for the different kinds of influence could be a useful venue for future research, beyond the fact that fiscal and economic crises and government changes provide windows of opportunity. Furthermore, it makes sense to adopt a longer-term perspective and explore the role of international economic institutions not only when fossil fuel subsidy reform is introduced but also in terms of maintaining those reforms.

Acknowledgements

I would like to thank Harro van Asselt, Thijs van de Graaf, Ron Steenblik and the anonymous reviewer for their extremely useful comments and suggestions at the various stages of writing this chapter as well as Moa Forstorp, Jasmiini Pylkkänen and Benni Yusriza for their assistance in collecting data. The research for this chapter was undertaken as part of the project ‘International Economic Institutions and Domestic Actors in the Climate Regime Complex’, which has been funded by the Swedish Research Council (Vetenskapsrådet), the Bank of Sweden Tercentenary Foundation (Riksbankens Jubileumsfond) and the Swedish Research Council Formas (Forskningsrådet Formas).

7.1 Introduction

The World Trade Organization’s (WTO) Agreement on Subsidies and Countervailing Measures (ASCM) has for years disciplined the use of trade-distorting subsidies by countries. Surprisingly, these rules have been largely absent in debates about fossil fuel subsidy reform. WTO rules provide, nevertheless, a clear set of indications on what might constitute a subsidy, as well as allowing some of these subsidies to be challenged by trading partners through a dispute-settlement mechanism. In this regard, the dearth of disputes involving fossil fuel subsidies is puzzling.

This chapter discusses the current and potential contribution of the trade regime to the identification and reform of fossil fuel subsidies. It analyses in particular how different types of fossil fuel subsidies do and do not intersect with existing trade rules. The chapter then offers thoughts on why fossil fuel subsidies have not been challenged yet through dispute settlement mechanisms nor even through unilateral trade remedies. Last, it discusses ways in which existing trade rules could be augmented to facilitate the reform of fossil fuel subsidies.

7.2 Why Have Countries Sought to Discipline Subsidies in General?

Subsidies have long been used by governments for a wide variety of reasons, including as a means to support particular activities that are deemed socially beneficial (e.g. public goods) or to reward individuals or institutions that are politically well connected. While citizens and firms are generally the direct recipients of government assistance, subsidies vary greatly in their design and whether they target incomes, production levels, the use of production inputs or the consumption of particular goods or services. This implies that different subsidies can have very different effects. A firm thus may attract subsidies for investing in capital equipment, which increases both the demand for the machines the firm is using and the firm’s output. Or a household may receive transfers from the government that reduce the price it pays for a good or service – be it diesel fuel or healthcare – thereby increasing the household’s consumption of that product.

As economies become ever more interdependent, it is reasonable to expect a subsidy applied by one country will affect its trading partners and also possibly all other economies.Footnote ¹ This means that subsidies usually need to be considered also from an international perspective, since subsidies applied by one country impose an externality on other countries, whether positive or negative. Here the logic of economics would posit that governments seek to encourage positive externalities while attempting to internalise or mitigate negative ones. By that token, subsidies to exporting firms ought to be welcomed by importing countries because all efficiency costs are, in that case, borne by the exporter, whereas the benefits are reaped by importers in the form of improved terms of trade (i.e. cheaper imports, a positive externality). Only where countries possess a collective preference for domestically produced goods and services would export subsidies ‘hurt’ importing countries (Johnson Reference Johnson1965).

Yet subsidies are an area in which trade law often appears – at least on the surface – to follow a different logic than that of economic theory. Far from welcoming their trading partners’ export subsidies, countries have instead sought to discipline the use of trade-distorting subsidies through bilateral and multilateral arrangements in the context of the WTO (Sykes Reference Sykes2010). What these arrangements make clear is that, in practice, countries are wary of the damage that foreign subsidies can cause domestic producers of like products more than they are content to allow domestic consumers to benefit from the downward pressure that production subsidies put on prices.

Part of the drive for subsidy disciplines has also been the need to secure the benefits of tariff concessions negotiated through the General Agreement on Tariffs and Trade (GATT), as subsidies to import-competing firms may undermine what foreign exporters have gained through the removal of import tariffs. The discipline of subsidies proceeds in this case from a concern to ensure a level playing field in international economic relations. It can be seen as a necessary addendum to the traditional theory of tariff bargaining, in which trade agreements are meant to address the negative externality that import tariffs impose on other countries through lower terms of trade (Bagwell and Staiger Reference Bagwell and Staiger1999).

Another reason why countries have sought to discipline subsidies using trade rules may be that governments lack the political clout to reform them domestically, even though they perceive those subsidies as economically inefficient or wasteful. Subsidies create their own constituencies, which makes it very difficult for elected officials to remove them. Just as Odysseus tied himself to the mast of his ship to resist the chant of the Sirens, governments may seek to ‘tie their own hands’ at the supra-national level in order to resist domestic pressures for maintaining or increasing subsidies. This argument was described by Putnam (Reference Putnam1988) in the general form of a ‘two-level game’, whereby governments use pressures at the domestic level for securing larger concessions at the international level, and vice versa. Under this logic, a government thus may attempt to empower itself domestically – that is, to increase its ability to resist domestic demands for more subsidies – by signing onto international agreements that limit its own ability to provide subsidies.

7.3 The Particular Case of Fossil Fuel Subsidies

On the face of it, the preceding arguments could apply equally to fossil fuel subsidies, since they essentially are a subset of all subsidies benefiting industries or consumers. As with most subsidies, the economic effects of fossil fuel subsidies can extend beyond a country’s own borders. This would be the case if a large oil-importing economy were to massively subsidise its domestic consumption of gasoline, thereby increasing global oil demand and imposing a negative terms-of-trade externality on other importing countries through higher oil prices and the accelerated depletion of oil resources. A positive terms-of-trade externality, by contrast, would ensue if an oil-exporting nation were to subsidise its production and increase global oil supply. In the former case, importing nations would have an incentive to cooperate and discipline fossil fuel subsidies, whereas the reverse would hold in the second case.

Fossil fuel subsidies also have implications for the competitiveness of industries that rely heavily on the use of energy products as inputs, such as steel-making (Rentschler et al. Reference Rentschler, Kornejew and Bazilian2017). For such industries, fossil fuel subsidies may confer an advantage to local producers in the form of lower marginal costs (Burniaux et al. Reference Burniaux, Château and Sauvage2011). The World Steel Association (2014) estimates, for example, that energy currently accounts for about 20 to 40 per cent of the total costs of steel production. To the extent that fossil fuel subsidies confer advantages to certain import-competing industries, they may well distort international trade and impose negative terms-of-trade externalities on exporting countries.

Fossil fuel subsidies differ nevertheless from most other subsidies in at least one important respect: they impose environmental externalities – generally negative – on other countries in addition to the terms-of-trade and other externalities described earlier. This changes the picture by adding one potential argument for countries to negotiate disciplines on fossil fuel subsidies. A need for international cooperation would thus arise where these subsidies generate trans-boundary environmental externalities, whether the externalities are global (e.g. climate change) or more localised (e.g. transboundary air pollutants such as sulphur oxides). The Intergovernmental Panel on Climate Change’s Fifth Assessment Report (IPCC 2014: 17) notes in this regard that ‘[e]ffective mitigation will not be achieved if individual agents advance their own interests independently. Cooperative responses, including international cooperation, are therefore required to effectively mitigate GHG [greenhouse gas] emissions and address other climate change issues.’ Since the reform of fossil fuel subsidies is an essential component of the mitigation toolkit (OECD 2017), the same basic argument holds and points to the need for countries to act in a concerted manner.

As with every collective action problem à la Olson (Reference Olson1971), international cooperation for disciplining fossil fuel subsidies may prove difficult where countries lack incentives to cooperate. This is particularly the case where (1) the benefits from cooperation (e.g. limiting increases in average global temperatures) are diffuse and have attributes of a public good, meaning that they are available to and shared by everyone, and (2) the number of countries involved is large.Footnote ² In this situation, some nations may be tempted to free ride on the efforts of others, leaving them to bear a disproportionate share of the burden of climate change mitigation (Nordhaus Reference Nordhaus2015).

Given the economic, fiscal and environmental co-benefits of reforming fossil fuel subsidies (see also Chapter 3), it may often be in countries’ own interests to reform such subsidies, irrespective of what other countries do and independent of climate change–related benefits. This would particularly be the case where net-oil-importing countries devote significant fiscal resources to subsidising the consumption of fossil fuels and where the impacts of higher fuel prices on industrial competitiveness are minor. To mention just one example, in Reference Nordhaus2015, the government of Indonesia unilaterally phased out its gasoline subsidies in a move to rein in public deficits and make better use of public funds. In this case, low international crude oil prices provided the opportunity and fiscal pressures provided the motive, not climate change mitigation (see Chapter 11).

7.4 How Effective Has the Multilateral Trade Regime Been in Disciplining Fossil Fuel Subsidies?

Even where climate change mitigation is not the main factor behind the reform of fossil fuel subsidies, reforming countries may still wish to secure additional benefits through international cooperation, be they environmental or economic. Section 7.3 has already shown that fossil fuel subsidies can impose terms-of-trade externalities on other countries, as do many other subsidies. Countries may also seek to ‘tie their own hands’ at the international level so as to resist future domestic pressures to reinstate the reformed subsidies (see also Chapter 8). The trade regime offers in this regard an appealing option, since it already possesses a set of rules and institutions for disciplining subsidies. Most countries are already members of the WTO (164 as of April 2018) and parties to one or several plurilateral, regional or bilateral trade agreements. In particular, the WTO’s Agreement on Subsidies and Countervailing Measures is currently the only body of trade law – and the only multilateral institution – regulating government use of fossil fuel subsidies that is backed by a dispute settlement mechanism (DSM).

A core requirement for concerted international action is to ensure that the scope of what is considered a subsidy is clear among participating nations. To that end, Article 1 of the ASCM specifies the conditions under which policies can be considered subsidies. Guidance to WTO members concerning the trade harm that different subsidies generate uses a ‘traffic light approach’. The ASCM thus distinguishes between subsidies that are deemed prohibited (red) – including export subsidies and local content requirements (LCRs) – and those that are only ‘actionable’ (amber). Should a country wish to challenge the ‘actionable’ subsidy of a trading partner, it must first demonstrate that the subsidy causes ‘adverse effects’. Such effects would include (1) injury to the industry by another member or (2) nullification or impairment of benefits accruing directly or indirectly to other members under the GATT.Footnote ³

Upon successful demonstration, the country alleging that another member is maintaining a prohibited or actionable subsidy can follow one of two procedural tracks to take action: either initiate a formal dispute through the DSM or impose a countervailing duty on subsidised imports from the offending country. The assessment of potentially adverse trade effects, however, critically hinges upon the availability of adequate data. To that end, Article 25 of the ASCM has established extensive reporting requirements, obliging all members to ‘notify any subsidy as defined in paragraph 1 of Article 1’ on an annual basis and requiring that each notification contain information on the essential features of the reported subsidies. As explained below, however, compliance with Article 25 has been spotty.

WTO trade rules thus offer a useful framework for restraining the use of specific fossil fuel subsidies that are trade distorting – a definition, a notification process and, most importantly, the ability to enforce an obligation by means of trade remedies and countervailing measures.

Steenblik (Reference Steenblik and Pauwelyn2010) illustrates the relationship between trade impediments and environmental effects with a graph depicting subsidies as ‘fish’ caught (or not) by nets representing the international trade regime (Figure 7.1). For subsidies that are both environmentally harmful and trade distorting, the likelihood of trade rules discouraging them is greatest, particularly if the subsidies are prohibited. In Figure 7.1, this is illustrated by the tighter mesh preventing fish from slipping through the net. Actionable subsidies, meanwhile, may be caught by the looser mesh, provided that the DSM is activated or countervailing measures are put in place.

Figure 7.1 Subsidies according to their environmental and trade effects

(Source: Adapted from Steenblik Reference Steenblik and Pauwelyn2010.)

Despite the stricter rules governing export subsidies and LCRs, none tied to fossil fuels have been the subject of any disputes brought to the WTO since the introduction of the ASCM. Nor have fossil fuel production subsidies been challenged at the WTO (Meyer Reference Meyer2017). Fossil fuel subsidies are a prominent feature in economies that started exploiting their fossil fuel endowments many years ago. The amount spent by governments to support the production of fossil fuels can be significant. Germany, for example, imposed a levy on final electricity consumers from 1975 to 1995 to enable coal-fired thermal plants to buy domestically produced hard coal, which plants were required to use and which was much more expensive than imported coal. Here, as in numerous other cases, trade effects may have been present, though apparently those effects were not significant enough to incite coal exporters to challenge the subsidies.

Indeed, we are aware of only one case involving fossil fuel production subsidies that came even close to a formal trade dispute. In the early 1990s, the government of Australia began pressing the European Community on its Member States’ coal producer subsidies, which Australia alleged was hurting its own coal producers’ export revenues (GATT 1991). In this case, however, the two economies settled out of court, and on 15 December 1993, they signed the bilateral European Community–Australia Coal Agreement. The European Community agreed to a standstill in subsidised coal production, and Australia committed to not challenge the Community’s coal subsidy scheme.

Even unilateral trade remedies have not been used against fossil fuel production subsidies. A search through the World Bank’s Global Antidumping Database (Bown Reference Bown2016a) and its Global Countervailing Duties Database (Bown Reference Bown2016b) – which cover antidumping and countervailing duty actions taken between 1980 and 2015 – reveals only one formal attempt to seek protection via one of these instruments. Save Domestic Oil, Inc., filed antidumping and countervailing duty petitions on certain crude petroleum oil products imported from Iraq, Mexico, Saudi Arabia and Venezuela; the US Department of Commerce ultimately dismissed them in an administrative determination issued in September 2000 (US Department of Commerce 2000). One of the reasons given for not initiating investigations pursuant to these petitions was that there was inadequate domestic industry support for taking action. Basically, the larger multinational companies depended on imports from these and other countries and so opposed the petitions. Overall, roughly 40 per cent of the industry was in favour of pursuing the petitions and 60 per cent against.

These various examples lend credence to Meyer’s finding that fossil fuel subsidies have largely avoided trade-related subsidy disciplines because WTO members have chosen not to challenge them (Meyer Reference Meyer2017). Crucially, though, most fossil fuel subsidies are not actually trade distorting in the mercantilist sense but rather trade facilitating in that they increase imports of fossil fuels.Footnote ⁴ As of 2014, 85 per cent of all the budgetary support and tax expenditures for fossil fuels provided by the (then) 34 countries of the Organisation for Economic Co-operation and Development (OECD) – plus Brazil, Russia, India, Indonesia, China and South Africa – were devoted to the consumption of fossil fuels, and most of them were ‘non-specific’ (OECD 2015).Footnote ⁵ Many consumer support measures shield end users from price volatility and reduce incentives for adjusting consumption in response to changes in international prices. As a result, a significant share of global demand has proven resilient to hikes in fossil fuel prices in the past. Considering the market-creating effects of these types of consumer subsidies, there is no a priori reason for WTO members that produce fossil fuels to initiate a dispute. Net importing countries, by contrast, could argue that a country that extensively subsidises the consumption of fossil fuels artificially increases global demand, thereby contributing to higher international fossil fuel prices (see Section 7.3). To our knowledge, no country has ever invoked this argument at the WTO.

Subsidies that are both trade facilitating and environmentally beneficial are the most benign subsidies among those depicted in Figure 7.1 and are typically not restricted by trade rules. By contrast, subsidies that are trade distorting but environmentally beneficial have been a persistent source of disputes in the WTO in recent years. Six cases were filed against renewable energy subsidy programmes between 2010 and 2014; a seventh was lodged in 2016.Footnote ⁶ The most contended complaint – from Japan and the European Union (EU) relating to the implementation of LCRs under the feed-in tariff programme adopted by the Canadian province of Ontario – pertained to prohibited subsidies (Article 3 of the ASCM) and was ultimately settled in favour of the plaintiffs.

7.5 What Makes Environmentally Harmful Energy Subsidies Resilient to WTO Disputes

The ASCM rules equally apply to environmentally harmful and environmentally beneficial energy subsidies, but distinct features of both subsidy programmes can explain why renewable-energy subsidies have repeatedly been the subject of WTO disputes, whereas fossil fuel subsidies have largely been overlooked. Contrary to the production of fossil fuels, the production of environmental technologies for the generation of renewable energy can theoretically be carried out by any country. Traditional market leaders hence face higher competition and fear the loss of market segments as other industrialised countries – as well as developing countries – enter the market. The investigations against foreign renewable-energy subsidy programmes thus can be seen as a means to protect domestic ‘green-collar’ jobs (Cameron Reference Cameron2009) and strengthen a nation’s environmental industry’s competitiveness rather than a sign of environmental concern.

Moreover, while a variety of renewable energy subsidy programmes exist, almost all cases filed against renewables to date have been based on Article 3 (‘prohibited subsidies’) due to the inclusion of LCRs. LCRs in the oil and gas industry are mostly tied to investment conditions and fall under the disciplines of the Agreement on Trade-Related Investment Measures, not the ASCM, and subsidies usually are not involved.Footnote ⁷ Moreover, the barriers to litigate a dispute are high insofar as the burden of proof lies entirely with the complainant (De Bièvre et al. Reference De Bièvre, Espa and Poletti2017). Typically, proving that a subsidy (1) is specific and (2) has caused trade harm is not a straightforward matter in practice (Asmelash Reference Asmelash2015).

One concern related to the burden of proof is the availability of adequate data. Hopes that the reporting requirements established through Article 25 of the ASCM would facilitate this requirement have not been fulfilled. Instead, the WTO noted in 2006 that ‘information is only available for less than half of the WTO membership’ (WTO 2006: 111). According to Steenblik and Simón (Reference Steenblik and Simón2011), this weak performance emanates from the lack of an effective system to enforce the ASCM’s disclosure obligations, as well as a low capacity in many countries to monitor their own budgetary and tax expenditures. A lack of clarity as to which subsidies ought to be reported and controversies on estimation methods add to the complexity of the task (Casier et al. Reference Casier, Fraser, Halle and Wolfe2014).

Calculating the equivalent of the value conferred to the recipients of a subsidy is a potentially intricate task, as no universally recognised standard exists to do so (Jones and Steenblik Reference Jones and Steenblik2010). In accordance with the ASCM rules, the value of direct transfers or tax breaks is simply their face value. The calculation of the value conferred through government loans or government provision of equity, by contrast, requires a more complex analysis. In the mid-1990s, the newly established WTO Committee on Subsidies and Countervailing Measures set up an expert group to explore such measurement issues. Agreement was initially reached on how to estimate some of the subsidy forms, such as those related to the government provision (Recommendation 15) or the government purchase of goods (Recommendation 16) (WTO 1998). But expectations soon turned to disappointment; absent a consensus on most of the remaining subsidies discussed, these early efforts were abandoned in 1999 (WTO 1998, 1999, 2005).

Lastly, WTO members seem, in practice, less worried about how foreign fossil fuel subsidies undermine the competitiveness of their fossil fuel producers than they are about the effects of such subsidies on other industries (e.g. steel-making). Some industries that might be hurt by fossil fuel subsidies may not be in the position to challenge them either because the subsidies are not sufficiently specific or because the harmed industry (e.g. a manufacturer of wind turbines) does not sell a directly comparable, or ‘like’, product. The latter concern gained in importance during the accession of Russia and Saudi Arabia, both of which are large hydrocarbon producer economies, but was eventually dropped (Asmelash Reference Asmelash2015). Together these factors contribute to explaining why countries have not made use of the ASCM to challenge fossil fuel subsidies despite the fact that the Agreement could restrain a large share of such subsidies, given the number of countries the WTO covers. This also helps explain why the WTO has not had any measurable effect on fossil fuel subsidy reform at the national level.

7.6 What Could Be Done in the Future?

While WTO rules exist that can certainly be used to discipline subsidies to production, as well as consumption subsidies that are specific enough, these rules have been used little to date. Rules also exist regarding the notification of subsidies to the WTO’s Committee on Subsidies and Countervailing Measures, but adherence continues to be patchy at best.

Some have suggested that the existing WTO rules and procedures could be used more robustly. An important question is, who would mount a challenge, and on what basis? On the production side, only producer countries would have any basis for challenging another country’s production subsidies, and they could only challenge subsidies for a like product. That is to say, an exporter of heavy fuel oil could not challenge another country’s subsidies for local coal production, even though it could be argued that one effect of the coal subsidy would be to reduce the market in that country for heavy fuel oil. It remains to be seen whether increased production from unconventional plays (e.g. shale and tight oil) may eventually increase the frequency of disputes related to fossil fuel subsidies in the WTO.

Most other proposed options would necessitate changing the rules. For example, at the beginning of the Doha Round, the European Union proposed that countries be sanctioned for not notifying the WTO of their subsidies. The European Union’s own state aid rules require members to notify the European Commission of any subsidies they intend on providing. If they fail to do so, the subsidies can be declared illegal, and the recipient may be compelled to refund them to the Member State.

Various commentators (Jones Reference Jones2016; Horlick Reference Horlick2017) have also suggested that the WTO develop a new sectoral agreement on fossil fuel subsidies (or energy subsidies more generally) that complements the Agreement on Agriculture and the plurilateral Agreement on Trade in Civil Aircraft (WTO 2007). Proponents of such a sectoral agreement have looked less to these trade-motivated agreements than to the proposals that have emerged following the negotiating mandate contained in the 2001 Doha Ministerial Declaration ‘to clarify and improve WTO disciplines on fisheries subsidies’ (WTO 2001: para. 28). The various attempts to craft new disciplines on fisheries subsidies have generally related more to the effect of subsidies on the underlying resource than on their effects on trade per se. In a similar vein, many advocates of a possible Agreement on Fossil Fuel Subsidies would like to see many or most fossil fuel subsidies prohibited because of their adverse effects on the environment.

New Zealand’s government has indicated that it wants the WTO to turn its attention to environmentally harmful subsidies, starting with fisheries, and even expanding eventually to other environmentally harmful subsidies (New Zealand Mission 2015).

In support of this initiative, several international non-governmental organisations have offered a wide range of ideas on actions that the WTO can take to address fossil fuel subsidies (Wooders and Verkuijl Reference Wooders and Verkuijl2017). These include engaging in capacity building on how to identify, measure and evaluate fossil fuel subsidies and various ideas for increasing transparency. Other ideas are to urge WTO members to make unilateral pledges to eliminate or reduce their fossil fuel subsidies and, beyond that, to negotiate an interpretive understanding on how the ASCM rules apply to such subsidies. At the most ambitious end are calls for adopting an ‘Energy Sector Agreement’, classifying fossil fuel subsidies as prohibited or allowing an environmental-effects test for subsidies.

Already, the Friends of Fossil Fuel Subsidy Reform (FFFSR) have made use of the standing WTO Committee on Trade and Environment (CTE) to update WTO members on their efforts, thereby keeping the issue ‘alive’ in the WTO (WTO 2017a). And for the first time, fossil fuel subsidy reform was formally raised by a discussant (New Zealand), rather than simply by members from the floor, during Russia’s first Trade Policy Review since its accession (2016).

New Zealand’s Minister of Trade, Todd McClay, has gone even further, suggesting that only the WTO could deliver on the various political commitments that have been made to date to reform fossil fuel subsidies (McClay Reference McClay2016).

A major new development occurred at the WTO’s 11th Ministerial Conference in Buenos Aires, where 12 WTO members signed a Ministerial Declaration encouraging the reform and phasing out of fossil fuel subsidies. This statement, for the first time, asserts a link with trade and calls for an enhanced role for the WTO, ‘aimed at achieving ambitious and effective disciplines on inefficient fossil fuel subsidies that encourage wasteful consumption’ (WTO 2017b). Whether other WTO members rise to this challenge remains to be seenFootnote ⁸ (see Chapter 9), but given the recent history of the WTO in developing new rules, it is fair to assume a WTO Agreement on Fossil Fuel Subsidies is a medium-term prospect at best.

Understandably, countries that are the most concerned about fossil fuel subsidies have looked for possibilities for obtaining quicker results through regional or plurilateral agreements (Greens-EFA 2014). Regional trade agreements (RTAs) are agreements signed among two or more trading partners, generally located in the same region of the world, and which cover substantially most trade between or among the parties to the agreement. As of April 2018, the WTO listed over 285 RTAs covering trade in goods or goods and services currently in force (WTO n.d.).Footnote ⁹ Plurilateral trade agreements often include economies from different regions of the globe and focus on one sector, such as trade in civil aircraft or in services, or type of government policy, such as government procurement. The logic of RTAs and plurilateral agreements is simple: because they involve fewer parties, they can be negotiated much more quickly than can accords that have to be worked out among the WTO’s more than 160 members.

Sectoral trade agreements have been much less common than RTAs, and there is only one that is in forceFootnote ¹⁰ that addresses subsidies: the Agreement on Trade in Civil Aircraft (WTO 2007). Negotiations did take place at the OECD to develop agreements to limit subsidies to shipbuilding and to iron and steel, but those never came into force (Pagani Reference Pagani2008). At the end of 2016, there were two other sectoral agreements being negotiated at the plurilateral level: the Environmental Goods Agreement and the Trade in Services Agreement. The Environmental Goods Agreement involved 17 WTO members, until negotiations were suspended after the failure of parties to finalise the agreement in December 2016; if it is revived, it may eventually address subsidies, but the initial focus of the negotiations was on tariff concessions. Similarly, though there was clearly an interest in disciplining subsidies in the Trade in Services Agreement, according to leaked drafts seen by Messenger (Reference Messenger2016: 187), ‘in its current form it does not appear to include subsidy regulation at all’. In any case, the Environmental Goods Agreement and Trade in Services Agreement would unlikely have a significant depressing effect on the use of subsidies for fossil fuels.

Plurilateral agreements, if they cover enough countries so as to affect most of global trade in the targeted goods or services, minimise the problem of free riding. In the case of RTAs, however, any language in the agreement to restrict the use of subsidies that is more limiting than that found in the ASCM benefits (in a mercantilistic sense) not only the other party or parties to the RTA but also all countries that trade with those parties; a country cannot selectively reduce subsidies only on goods exported to other RTA parties. This logic has, for most of the era of RTAs, kept out language on subsidies, except for prohibitions against export subsidies (Geloso-Grosso Reference Geloso-Grosso2003). However, new possibilities begin to present themselves when the main concern about subsidies is their effect on shared natural resources, such as the marine environment or the atmosphere.

Arguably, the first RTA in modern times to include language addressing fossil fuel subsidies is the EU–Singapore Free Trade Agreement (EC 2015), which was concluded in October 2014 but as of April 2018 had yet to come into force. Its Article 13.11 states:

Since Singapore produces no coal and consumes only about 0.6 million tonnes annually (compared with the European Union’s annual consumption of around 600 million tonnes), this part of the paragraph clearly is aimed mainly at the European Union itself. Moreover, though trade effects are mentioned, the rationale for this soft constraint on ‘public support systems for fossil fuels’ is clearly environmental.

The environmental motive for disciplining certain subsidies is even more evident in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Agreement (TPP-11), the legally verified text of which was released publicly on 26 January 2018. This Agreement, which has been billed as ‘mega-regional’ because of the combined economic power of the countries involved, has been signed but not ratified by all parties. Article 20.16 of the Agreement set out a number of rules applicable to all parties on the use of subsidies to marine capture fishing (including subsidies to fuel used by fishing vessels) and establishes subsidy notification requirements. Among subsidies that would be prohibited are those which have a negative effect on overfished fisheries (paragraph 5a), benefit vessels carrying out illegal, unreported and unregulated fishing (paragraph 5b) and any new specific subsidies to fisheries that contribute to overfishing or excess capacity to fish (paragraph 7).

Interestingly, fossil fuel subsidies also were addressed in an earlier version of the TPP’s Environment Chapter, at a time when the United States was still a party to the negotiations. The chapter’s Consolidated Text of 24 November 2013, as posted on the website WikiLeaks (WikiLeaks 2014a), contained the following language in Article SS.15, paragraph 6:

According to the Report from the Chairs for the Environment Chapter, also dated 24 November 2013 and also posted by WikiLeaks (2014b), several of the poorer Southeast Asian economies in the negotiations objected to the reference to fossil fuels, and it was dropped.

What is significant about the text pertaining to fossil fuel subsidies, as opposed to the final language on subsidies to fisheries, is that it was essentially referential: reminding parties of their pre-existing APEC obligations, as stated in the Leaders’ Communiqué of November 2009, and merely building on that commitment with a non-binding appeal to the parties to ‘undertake as appropriate, cooperative and capacity-building activities’.

This brings us to the third approach: informal law (Pauwelyn et al. Reference Pauwelyn, Wessel and Wouters2012; Shaffer et al. Reference Shaffer, Wolfe and Le2015). The APEC Leaders’ Declaration of 14 November 2009 (APEC 2009) echoed a similar declaration issued by G20 leaders at the end of their meeting in Pittsburgh the previous September. Although they fall outside the international trade regime itself, both declarations commit their membership ‘to rationalise and phase out over the medium term fossil fuel subsidies that encourage wasteful consumption’, recognising the importance of providing those in need with essential energy services. Compared with the hard law of the ASCM, such hortatory language may appear toothless. But it sets out a broad common goal within which the more enthusiastic members have been able to craft processes that allow them to move forward in small steps. And, as seen by the reference to the APEC commitment in the failed attempt to include language on fossil fuel subsidies in the Trans-Pacific Partnership, the declarations can also buttress efforts in other forums, including the United Nations Framework Convention on Climate Change (see van Asselt and Kulovesi Reference van Asselt and Kulovesi2017; see also Chapter 8).

Since 2009, both the G20 and APEC have created processes for annual reporting of their fossil fuel subsidies and for conducting voluntary peer reviews. The annual self-reports of subsidies, particularly those by G20 countries, have been criticised for their omissions by several nongovernmental organisations (e.g. Koplow Reference Koplow2012; Bast et al. Reference Bast, Doukas, Pickard, van der Burg and Whitley2015); however, the peer reviews have since increased at least the level of transparency, if not ambition (Mathiesen Reference Mathiesen2016; Ogden and Marano Reference Ogden and Marano2016). Moreover, thanks to the importance of the G20 and APEC in the world economic order, many other organisations, both intergovernmental and non-governmental, have used the G20 and APEC commitments as a springboard to collect data and to undertake their own reports and reviews.

7.7 Conclusion

So was Pascal Lamy right? Has the global trade regime missed the opportunity to do something about fossil fuel subsidies? In one sense it has: though some countries and organisations have called for new or tougher WTO disciplines on fossil fuel subsidies, no new negotiations towards that end have been started. Rather, a number of countries have endorsed non-binding bilateral or plurilateral commitments to phasing out some of their fossil fuel subsidies eventually, outside of the multilateral trade regime. These various informal law initiatives, which lack formal disciplines and dispute mechanisms, could be seen as bypassing the traditional route to subsidy disciplines: multilateral trade rules. But they could also be viewed as creating alternative routes for reaching the same eventual objective.

Indeed, it is difficult to see any path forward to hard international subsidy disciplines on fossil fuel subsidies that does not involve efforts on multiple fronts, involving negotiations in the WTO, regional and plurilateral trade instruments and work in non-trade arenas such as the UNFCCC and the G20. These discussions and negotiations, in turn, need to be informed by sound data and analysis undertaken by intergovernmental and non-governmental organisations.

However, to facilitate the process of eventual multilateralism, these disparate efforts need to rest on common foundations and norms. The first such foundation is a common concept of what constitutes a ‘fossil fuel subsidy’. The advantages of aligning the definition and coverage of the term with that defined in Article 1 of the ASCM are that it enjoys international recognition, and there is a wide body of analytical work that has been done on the different subsidy elements (by both economists and lawyers). The second is that whatever disciplines are imposed on fossil fuel subsidies, they need to avoid being ‘WTO negative’ – that is, the disciplines created should not be weaker than those set out in the ASCM. This still leaves the possibility that certain types of subsidies will not be addressed through omission, but this approach is less problematic than appearing to contradict the multilateral rules on subsidies to which most of the world’s economies have already agreed to adhere.

Disclaimer

All authors were at the time of writing working for the OECD’s Trade and Agriculture Directorate and were writing in a strictly personal capacity. The views expressed are theirs alone and do not necessarily reflect those of the OECD Secretariat or the member countries of the OECD.

8.1 Introduction

The adverse environmental, economic and social implications of the sizeable subsidies handed out by governments for the production and consumption of fossil fuels are increasingly clear. These implications are particularly significant for the socio-environmental challenge of addressing climate change. Anthropogenic climate change mainly results from the combustion of fossil fuels such as coal, oil and gas, with fossil fuel combustion accounting for 69 per cent of global greenhouse gas (GHG) emissions in 2010 (Blanco et al. Reference Blanco, Gerlagh, Suh, Edenhofer, Pichs-Madruga and Sokona2014: 354). Indeed, there is an increasing recognition that to avoid dangerous climate change, most fossil fuel reserves will need to be left in the ground (IEA 2012; McGlade and Ekins Reference McGlade and Ekins2015). By promoting the extraction and use of fossil fuels, subsidies thus exacerbate the climate problem.

Against this background, it is perhaps striking that the global climate regime put in place by the United Nations Framework Convention on Climate Change (UNFCCC) hardly addresses fossil fuel subsidies. This is in part due to the mitigation architecture of the global climate regime: the international climate treaties do not specify which policies and measures countries are required to implement to reduce GHG emissions, leaving each country free to choose how to mitigate climate change. However, the lack of substantive obligations related to fossil fuel subsidies – or, conversely, measures to reform or remove them – also reflects broader concerns about the governance of this sensitive issue area of energy policy.

This chapter explores how the global climate regime established by the UNFCCC has governed and could govern fossil fuel subsidies. It begins by reviewing the literature documenting the relationship between fossil fuel subsidy (reform) and climate change (mitigation), which reveals not only that there is increasing evidence of the impacts of fossil fuel subsidies on GHG emissions but also that efforts to reform subsidies can yield important climate change mitigation benefits. The chapter then moves on to discuss how parties to the UNFCCC have by and large sought to avoid addressing fossil fuel subsidies directly, notwithstanding efforts by some parties. Although this could lead one to conclude that the global climate regime has had no discernible influence on fossil fuel subsidy reform at the national level, the chapter moves on to discuss the various ways in which the UNFCCC can exert influence on fossil fuel subsidy reform in the future.

The chapter concludes that even though the role of the UNFCCC in the broader regime complex for fossil fuel subsidies may be constrained (Van de Graaf and van Asselt Reference Van de Graaf and van Asselt2017), it can nevertheless be an important complementary venue for promoting fossil fuel subsidy reform by (1) increasing the reputational costs of not following through on voluntary pledges to reform subsidies, (2) improving transparency around fossil fuel subsidies, (3) changing incentive structures by providing financial support, (4) strengthening an emerging international social norm on fossil fuel subsidy reform and (5) offering a platform for inter-country learning.

8.2 The Climate Change Impacts of Fossil Fuel Subsidies and Their Removal

There is a growing body of literature highlighting the impact of fossil fuel subsidies and their removal on emission reductions at both the global and national levels, particularly for consumer subsidies. This section reviews some of the key findings from these studies.

In terms of the climate impacts of fossil fuel subsidies, the International Energy Agency (IEA) suggests that 13 per cent of global carbon dioxide (CO₂) emissions in 2014 were from subsidised fossil fuels (equivalent to a subsidy of USD 115 per tonne of CO₂). In comparison, all the emissions trading schemes in the world in 2014 covered only 11 per cent of global CO₂ emissions (IEA 2015b: 23). This estimate (based on the IEA’s price-gap methodology; also see Chapter 2) may still be conservative, however. Stefanski (Reference Stefanski2014, Reference Stefanski2016), for instance, estimates that subsidies led to 36 per cent of global CO₂ emissions between 1980 and 2010. Focusing on the US government’s tax breaks to the oil and gas industry, Erickson et al. (Reference Erickson, Down, Lazarus and Koplow2017: 3) further suggest that ‘the CO₂ emissions associated with subsidy-dependent future U.S. oil production are equivalent to 1% of the remaining carbon budget for the entire world’’ (emphasis in original).Footnote ¹

In addition to their contribution to increased fossil fuel production and consumption (and, by implication, to GHG emissions), fossil fuel subsidies prevent the uptake of renewable energy because they ‘impair the competitiveness of renewable-energy technologies, reinforce the continuation of fossil fuel–based systems and distort investment decisions in favour of fossil fuel technologies’ (Bridle and Kitson Reference Bridle and Kitson2014: 18). The negative climate impact of fossil fuel subsidies thus could be even greater if their effects on renewable energy promotion are considered part of the equation.

Various studies have modelled the impact of removing fossil fuel subsidies on emission reductions globally and for individual countries. The range of emission reductions from the phasing out of consumer fossil fuel subsidies is very broad, depending on the scenarios employed, the countries included in the modelling, the scale of the subsidies and the timeframe for the phase-out. For example, research by the Organisation for Economic Co-operation and Development (OECD) shows that removal of fossil fuel consumption subsidies could lead to global GHG emission reductions of about 3 per cent by 2020, rising to about 8 per cent by 2050 (Burniaux and Château Reference Burniaux and Chateau2014; Durand-Lasserve et al. Reference Durand-Lasserve, Campagnolo, Château and Dellink2015). The IEA (2015a) finds that accelerating the partial phase-out of subsidies to fossil fuel consumption would lead to a 10 per cent reduction in energy-sector emissions by 2030. Focusing on producer subsidies, Gerasimchuk et al. (Reference Gerasimchuk, Bassi and Ordonez2017) reveal that the removal of upstream subsidies to fossil fuel producers alone could result in emission reductions of up to 37 gigatonnes (Gt) of CO₂ equivalent, roughly corresponding to total annual global emissions.

In addition to these global estimates, several studies offer national estimates. Merrill et al. (Reference Merrill, Bassi, Bridle and Christensen2015a) examine 20 countries,Footnote ² finding that if these countries would reduce their fossil fuel subsidies to zero between 2016 and 2020, this would result in average GHG emission reductions of about 11 per cent across these countries. Others have carried out country-specific studies. For instance, Lin and Ouyang (Reference Lin and Ouyang2014) estimate that the removal of consumer subsidies in China in 2006–10 led to emissions savings of 3.72 per cent of total CO₂ emissions during that period. In Turkey, the elimination of production subsidies to coal could yield CO₂-equivalent emission reductions of 2.5 per cent by 2030, and the removal of regional investment subsidies could result in reductions of 5.4 per cent (Acar and Yelden Reference Acar and Yeldan2016).

Studies on the relationship between the phase-out of fossil fuel consumption subsidies and emissions reductions stress that although the removal of subsidies to consumers can lead to domestic and international GHG emission reductions, it requires policies to cap emissions (Burniaux and Château Reference Burniaux and Chateau2014; Schwanitz et al. Reference Schwanitz, Piontek, Bertram and Luderer2014; Merrill et al. Reference Merrill, Harris, Casier and Bassi2015b). For example, Burniaux and Chateau (Reference Burniaux and Chateau2014) suggest that fossil fuel subsidy reform in the presence of an emissions cap increases emission reductions from about 8 to 10 per cent.

A related finding is that fossil fuel subsidy reform will only have long-term impacts on emission reductions if it is implemented alongside complementary energy and climate policies. Notably, the savings can be reinvested into social safety nets to mitigate the impacts of rising energy prices or swapped in the energy system to enable a shift towards low-carbon energy sources. This is key to enabling a switch towards sustainable electricity, access to cleaner and sustainable fuels, investment in energy efficiency and domestic finance for public transport and sustainable-energy infrastructure such as renewables. For instance, Merrill et al. (Reference Merrill, Bassi, Bridle and Christensen2015a) found that if 30 per cent of the funds saved by removing fossil fuel subsidies were used for renewable energy (10 per cent) and energy efficiency (20 per cent), average emissions reductions from across 20 countries could go up from 11 to 18 per cent by 2020. This point is not new: in 1987, a paper noted that ‘[b]y redirecting the funds spent on energy subsidies, governments could mitigate the impacts of energy price increases on lower income groups. Tax rebates or investments in improving the energy efficiency of equipment used by the poor (kerosene lanterns and stoves, for instance) are two alternatives’ (Kosmo Reference Kosmo1987: 50). Although technologies have improved since then, the proposition is still valid. For example, a United Nations Environment Programme (UNEP) report explains that hypothetically redirecting one year’s worth of kerosene subsidies towards kerosene-free lighting systems (e.g. solar) would eliminate the need for all subsequent subsidies for the service life of those new systems (UNEP 2014). More generally, achieving the combined renewable-energy targets for 2020 in the Middle East and North Africa could cost up to USD 200 billion, which is less than one year’s worth of fossil fuel subsidies in the region (USD 237 billion; Bridle Reference Bridle2014).

In summary, fossil fuel subsidies emerge as a policy instrument that can engender carbon lock-in (i.e. the building of costly and long-lasting energy infrastructure; see Unruh Reference Unruh2000; Erickson Reference Erickson2015), further contributing to climate change. This also means, however, that reform of fossil fuel subsidies is a potentially powerful tool and catalyst for other policies to help deliver climate change goals, potentially helping to disrupt the existing lock-in. Yet, as Section 8.3 will show, this potential has thus far remained largely untapped in the main international regime addressing climate change: the UNFCCC.

8.3 Fossil Fuel Subsidies and the Climate Change Convention: The Story So Far

Throughout its evolution over the past 25 years, the global climate regime has, by and large, eschewed the issue of fossil fuel subsidies.Footnote ³ Even though some parties have drawn attention to the linkages between such subsidies and climate objectives since the inception of the UNFCCC, support to fossil fuel production or use is not explicitly mentioned in any of the three climate treaties – let alone made subject to legally binding obligations. Indeed, fossil fuels are not directly addressed at all in the UNFCCC, the Kyoto Protocol or the Paris Agreement (van Asselt and Lazarus Reference van Asselt and Lazarus2015; Piggot et al. Reference Piggot, Erickson, Lazarus and van Asselt2017).

One of the key reasons for this omission is that countries are generally reluctant to cede their national sovereignty over natural resources. They are also prone to challenge any supra-national effort to govern energy, including fossil fuels. This can be witnessed in other areas of international governance, such as energy trade, but it is also true in cases of supra-national governance, such as the European Union (Van de Graaf et al. Reference Van de Graaf, Lesage and Westphal2010: 103). Throughout the history of the climate regime, developing countries have also tended to resist the idea of international climate change mitigation obligations, fearing that these would limit their economic development opportunities. Addressing energy – including fossil fuel subsidies – under the UNFCCC therefore links to long-standing concerns over national sovereignty and the divides between developed and developing countries.

Rather than highlighting fossil fuel production and consumption as a source of GHG emissions, the debate in the climate regime has focused on fossil fuel–producing nations’ concerns that taking climate action would have a negative impact on their economies. Members of the Organization of the Petroleum Exporting Countries, including Kuwait and Saudi Arabia, initially sought to emphasise scientific uncertainty over climate change and ‘went to great lengths to … avoid any reference to energy’ in the Convention (Dessai Reference Dessai2004: 19). Their concerns were reflected in the Convention and have led to a protracted discussion on the impacts of ‘response measures’ on developing countries (Depledge Reference Depledge2008; Chan Reference Chan2016).

All this is not to say that no attempts have been made to address fossil fuel subsidies through the climate regime. Already during the negotiations of the UNFCCC in the early 1990s, Vanuatu, on behalf of the Alliance of Small Island States, suggested that the climate treaty should have a provision including a ‘prohibition on subsidising activities which contribute to climate change’ (UNFCCC 1991a: 30). Sweden likewise called for a commitment to reduce ‘subsidies for the production and use of fossil fuels with a view to abolish such subsidies at the latest by the year (2000)’ (UNFCCC 1991b: 4). Notwithstanding such calls, countries decided against listing any specific mitigation measures in the Convention that parties would need to adopt.

In the negotiations leading up to the 1997 Kyoto Protocol, some parties – including France, New Zealand, Norway and Switzerland – raised the prospect of fossil fuel subsidy reform or phase-out as possible ‘policies and measures’ to mitigate climate change (Depledge Reference Depledge2000: paras. 72–73). Switzerland, for example, suggested to either put in place targets for subsidy reduction or to have a blanket removal of ‘all types of subsidies except those related to research and environmental protection’ (UNFCCC 1996: 4). But it was not only developed countries advocating for fossil fuel subsidy reform; some oil-producing nations also put proposals forward, with Iran proposing the removal of coal subsidies ‘as the most pollut[ing] source of energy’ (UNFCCC 1997: 32). But just as in the negotiations on the UNFCCC, countries could not agree on a list of policies and measures that Kyoto parties would be obliged to implement. Instead, they could only reach agreement on an indicative list of policies and measures. While fossil fuel subsidies are not mentioned in that list as such, the Protocol does mention the ‘[p]rogressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments’ (Article 2.1(a)(v); emphases added). This could be seen as an implicit acknowledgement of fossil fuel subsidy reform as a possible climate mitigation measure.

Yet, while the Kyoto Protocol has arguably provided the most sophisticated international legal framework for climate mitigation to date, its importance is rapidly diminishing. The first commitment period from 2008 to 2012 included all key developed countries apart from the United States, which never ratified the Protocol, and Canada, which formally withdrew in 2011. The Protocol amendment for the second commitment period from 2013 to 2020 is yet to enter into force, but even if it did, other major developed countries such as Japan and Russia also have decided to opt out.

The future mitigation framework under the climate regime will be based on the Paris Agreement, which came into force in November 2016. The Agreement’s key achievements include setting long-term mitigation objectives, engaging all parties in mitigation action and introducing five-year ambition cycles. The Paris Agreement also includes provisions on enhanced transparency and regular global stocktaking (Bodansky Reference Bodansky2016; van Asselt Reference van Asselt2016). The Agreement’s main substantive provision provides that ‘[e]ach Party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve’ and that ‘Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions’ (Article 4.2). The Agreement thus emphasises the role of national governments in determining their own mitigation ambition levels and measures in the form of nationally determined contributions (NDCs).

Although several developed and developing countries referred to fossil fuel subsidies in their submissions on issues to be included in the Paris Agreement (Benninghoff Reference Benninghoff2013), fossil fuel subsidies do not feature in the new treaty. However, as the Paris Agreement cements the discretionary approach to policies and measures under the UNFCCC regime, with countries being free to adopt the policies they choose to pursue their targets, it has provided an opportunity for some parties to put forward fossil fuel subsidy reform as a mitigation measure. Specifically, the lack of standardisation for NDCs leaves countries with the option to include the types of information they deem useful (Merrill et al. Reference Merrill, Harris, Casier and Bassi2015b). The range of mitigation policies and actions in countries’ NDCs could take the form of either specific actions and their expected outcomes or defining the outcome (e.g. an emissions target) and listing key policies and measures through which the target will be achieved. This has opened the door for some countries to include fossil fuel subsidy reform in their intended NDCs (INDCs). Terton et al. (Reference Terton, Gass, Merrill, Wagner and Meyer2015) found that 13 countries included references to fossil fuel subsidy reform in their INDCs in the run-up to Paris. Ethiopia’s INDC, for example, indicates that the country has ‘already removed fossil fuel subsidies to enable enhanced generation and use of clean and renewable energy’ (Ethiopia 2015: 7). Morocco’s INDC commits the country to ‘[s]ubstantially reducing fossil fuel subsidies, building on reforms already undertaken in recent years’ (Morocco 2015). And India’s INDC explains how India has ‘cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of taxation’ (India 2015: 27). These developments thus show that even though the Paris Agreement offers no concrete guidance, parties have nevertheless started to link fossil fuel subsidies to climate change policy.

8.4 The UNFCCC and Fossil Fuel Subsidies: (Possible) Pathways of Influence

Section 8.3 suggests that the influence of the global climate regime on fossil fuel subsidy reform has been minimal thus far. However, it also shows that fossil fuel subsidies have not been completely absent from the political agenda and that with the new architecture put in place by the Paris Agreement, new opportunities may arise in which the climate regime, working through its parties and non-state actors, can exert influence on fossil fuel subsidy reform.

This section suggests that there are at least five possible pathways through which the UNFCCC could influence fossil fuel subsidy reform at the national level, following different schools of thought in international relations and international legal theory. While none of these pathways of influence rely on coercion or enforcement, they nevertheless highlight that the climate regime could offer further support for national reform efforts.

The first pathway is inspired by Keohane’s (Reference Keohane1984) rational-functionalist account of regimes, which highlights the importance of reputational costs for cooperation. Drawing on Guzman (Reference Guzman2008), Smith and Urpelainen (Reference Smith and Urpelainen2017) elaborate on this idea in the context of international institutions addressing fossil fuel subsidy reform, focusing on the Group of 20 (G20) and the Asia-Pacific Economic Cooperation (APEC) group. They argue that the adoption of formal commitments by states to reform or remove fossil fuel subsidies can increase the reputational costs of reneging on that commitment. States have adopted such (voluntary) commitments already through the G20 and APEC. The NDCs communicated to the UNFCCC – some of which already include fossil fuel subsidy reform, as we saw earlier – could be similarly seen as voluntary commitments. Including fossil fuel subsidy reform in NDCs may make it harder for political leaders to backslide and may even make it harder for future governments to reverse reforms, as domestic stakeholders may try to hold their governments to account for their non-binding international commitment.

Yet the influence exerted through this first pathway is likely to depend on a second way in which an international institution can drive national politics and policies: by providing information. The G20 and APEC have followed their commitments up with peer reviews of the fossil fuel subsidies handed out by several countries (Aldy Reference Aldy2017).Footnote ⁴ But the UNFCCC, like most other multilateral environmental agreements, also incorporates a reporting and review process that aims to increase the transparency of countries’ performance (Gupta and van Asselt Reference Gupta and van Asselt2017). Although the transparency arrangements of the UNFCCC are in flux following the adoption of the Paris Agreement, existing rules offer space for countries to shed light on both the levels of their fossil fuel subsidies and their efforts to reform them (Benninghoff Reference Benninghoff2013), and future rules may similarly provide sufficient leeway for countries to do so. This information-producing function should not be underestimated. The generation and diffusion of information by an international institution can empower a variety of domestic stakeholders (e.g. non-governmental organisations, parliamentarians, opposition parties, or even other ministries) and help them hold their governments and leaders to account (Dai Reference Dai2007; see also Kahler Reference Kahler2000).

Another pathway follows the rationalist assumption that by changing incentive structures, international institutions can influence national politics. The climate regime can do so by putting in place financial incentives, particularly for developing countries. One such incentive would be to make reform efforts eligible for financial support, for instance, through the Green Climate Fund. Support does not have to be limited to financial flows but could also be aimed at enhancing the technical capacity to understand the extent of subsidies or at generally building institutional capacity (cf. Cheon et al. Reference Cheon, Urpelainen and Lackner2013). Already countries such as Denmark are offering funding to support fossil fuel subsidy reform, for instance, through the World Bank’s Energy Sector Management Assistance Programme. While providing climate finance for fossil fuel subsidy removal – which, on its own, ultimately should lead to increasing revenues for governments – may sound counterintuitive, such finance could take the form of bonds, which would generate finance upfront, allowing governments to repay when they make savings in the future (Hale and Ogden Reference Hale and Ogden2014). Such savings can be significant. For example, Indonesia freed up around USD 15.6 billion in 2015 (Pradiptyo et al. Reference Pradiptyo, Susamto, Wirotomo, Adisasmita and Beaton2016), and India reduced the subsidy bill by USD 15 billion in 2014 (IEA 2015a).

A fourth pathway more closely follows social constructivist thinking. As pointed out by Van de Graaf and Blondeel in Chapter 5, fossil fuel subsidy reform could be viewed as an emerging norm – that is, a ‘standard of appropriate behaviour’ (Finnemore and Sikkink, Reference Finnemore and Sikkink1998) – in international governance. To the extent that they are correct – and it is admittedly not yet crystal clear whether such an international norm indeed exists – the role of international institutions such as the UNFCCC can be to act as an ‘organisational platform’ to further clarify and diffuse this norm, amplifying the activities of other institutions and potentially helping to trigger a ‘norm cascade’ (cf. Finnemore and Sikkink, Reference Finnemore and Sikkink1998). As discussed above, parties to the climate regime have so far refrained from referring to fossil fuel subsidies directly in any legal text. The closest they have come is the provision in the Paris Agreement that specifies that one of the goals of the treaty is to ‘[make] finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’ (Article 2). Although this provision does not mention fossil fuel subsidies as such, financing the continued production and consumption of fossil fuels is most certainly not in line with ‘with a pathway towards low greenhouse gas emissions and climate-resilient development’.

One way to strengthen the climate regime as an ‘organisational platform’ for diffusing a norm on fossil fuel subsidy reform would be for the parties to adopt a decision containing specific language on the phasing out of fossil fuel subsidies, or acknowledging that this goal has been adopted in the context of other international forums, such as the outcome document of the Rio+20 Summit in 2012 (United Nations 2012: para. 225) and repeated declarations issued by the G20 (e.g. G20 2009). Reiteration of such goals would not necessarily mean that the UNFCCC would play a stronger role in the monitoring of whether this goal is being met, but it offers an important signal that the goal is supported by the international community of developed and developing countries and that fossil fuel subsidy reform is seen as a legitimate and useful tool to achieve climate policy objectives.

Finally, also along the lines of constructivist theories of international relations and international law (Brunnée and Toope Reference Brunnée, Toope, Dunoff and Pollack2012), environmental regimes such as the climate regime can be important facilitators of learning and the diffusion of policies (Haas Reference Haas2000; Holzinger et al. Reference Holzinger, Knill and Sommerer2008). One specific way in which the climate regime can foster learning is through its so-called technical expert meetings, which have been a regular staple on the negotiation agenda and will continue to be so until at least 2020. At these meetings, governmental and non-governmental experts share experiences and views on specific actions, technologies and policies with high mitigation potential. The meetings thus far have focused on topics such as energy efficiency in urban environments, renewable energy, non-CO₂ GHGs and carbon capture and storage (UNFCCC n.d.). Fossil fuel subsidy reform was proposed as a topic by some countries, including New Zealand (2013), and was included as a session as part of a broader technical expert meeting on the social and environmental costs of carbon in 2016. The subject has also been raised consistently by the Friends of Fossil Fuel Subsidy Reform in dedicated side events at UNFCCC Conferences of the Parties and inter-sessional meetings since 2013 (see Chapter 9), as well as via an international communiqué presented in 2015, which has been endorsed by over 40 countries and associations representing thousands of businesses (FFFSR 2015). Future meetings could address fossil fuel subsidy reform in more detail, with the UNFCCC providing a formal framework and venue for such capacity building. In addition, technical papers prepared in relation to the technical expert meetings have already repeatedly highlighted fossil fuel subsidy reform as an option for increasing mitigation ambition (e.g. UNFCCC 2016: 23–24).

The preceding discussion shows that there may be ways in which the global climate regime can help drive fossil fuel subsidy reform. However, the limitations of the regime – and the reasons why fossil fuels were never explicitly tackled in the first place – should also be acknowledged. As Keohane and Victor (Reference Keohane and Victor2013) write, the problem structure of addressing climate change – focused on a global public good, with high levels of conflict over the distribution of costs and benefits – is not easily amenable to tackling energy challenges. The history of the climate regime’s treatment of energy and fossil fuels likewise suggests that any efforts to explicitly address these issues will meet with resistance from at least some parties. Combined with an already full agenda and consensus rule of the UNFCCC, this may make it challenging for the climate regime to exert any influence (Lang et al. Reference Lang, Wooders and Kulovesi2010).

Moreover, as several other chapters in this book underscore, the UNFCCC would by no means be the only international institution influencing fossil fuel subsidy reform. On the contrary, it would step into an already crowded field occupied by other international organisations (e.g. the OECD, IEA, International Monetary Fund, and World Bank; see Chapter 6) and non-governmental organisations (e.g. the Global Subsidies Initiative; see Chapter 10). This means that the extent to which the climate regime affects fossil fuel subsidy reform efforts at the national level depends on how it acts in concert with other institutions. Yet the UNFCCC is unique in that it can link fossil fuel subsidies to their climate change impacts, and it offers a forum in which more than 190 countries from the developed and developing world participate.

8.5 Conclusion

This chapter has discussed what role, if any, the global climate regime established by the UNFCCC plays in the international governance of fossil fuel subsidies and in which ways the regime could exert influence in the future. The climate benefits of fossil fuel subsidy reform are clear. A growing number of studies show that these subsidies have led to a significant amount of GHG emissions. Moreover, research has indicated that even a partial reform of fossil fuel subsidy reform would lead to global emission reductions of between 3 and 8 per cent. Further mitigation gains can be made through the reinvestment of savings made in sustainable energy.

Given the climate change impacts of fossil fuel subsidies – and, conversely, the mitigation potential of measures to reform them – the climate regime is one of the international institutions that could be expected to address fossil fuel subsidies. However, as we have shown in this chapter, parties to the UNFCCC have so far refrained from addressing fossil fuel subsidies directly, even though some parties have started to include fossil fuel subsidy reform as a national climate change mitigation measure in the wake of the Paris Agreement.

Although it still remains to be seen whether the climate regime will become more active in the international governance of fossil fuel subsidies in the future, we have outlined five possible pathways through which the regime can influence the governance of fossil fuel subsidies at the national level. The first pathway highlights the reputational cost of cooperation in the context of voluntary commitments to subsidy reform made by UNFCCC parties, notably in their NDCs. A second pathway emphasises transparency and information linked to both NDCs and UNFCCC reporting mechanisms. The third focuses on the possibility of building incentive structures through international private and domestic finance. A fourth pathway underscores the possible role of the UNFCCC in amplifying an emerging norm on fossil fuel subsidy reform. And finally, the UNFCCC could also influence subsidy reform by providing a framework for learning and building institutional capacity.

The extent to which parties to the climate regime (as well as other actors) pursue any of these pathways remains to be seen, and much will depend on developments and factors exogenous to the climate regime, from elections in fossil fuel–producing countries to the development and uptake of new clean-energy technologies. However, there seems to be at least some movement, as evidenced by the inclusion of fossil fuel subsidy reform in several NDCs. As parties continue to look for options that could deliver significant mitigation and sustainable-development benefits, it is more likely than not that fossil fuel subsidy reform will reappear on the political agenda of the climate regime. If and when it does, the potential impact of subsidy reform as a policy tool for reduced emissions and as a fiscal instrument to save and reinvest government resources towards sustainable energy should not be overlooked.

Acknowledgements

The authors wish to thank Jakob Skovgaard and an anonymous reviewer for helpful comments on an earlier draft. Harro van Asselt acknowledges funding from the Swedish Research Council Formas (project ‘From Emissions to Extraction’). Laura Merrill acknowledges the support of donors to the Global Subsidies Initiative of the International Institute for Sustainable Development, the Nordic Working Group for Global Climate Negotiations and the Nordic Council of Ministers.

9.1 Introduction

Within the fossil fuel subsidy reform literature to date, little attention has been paid to the role of informal transgovernmental networks in promoting what might be regarded as an emerging fossil fuel subsidy reform norm at the international level (see also Chapter 5). A coalition of nine non-Group of 20 (G20) countries known as the Friends of Fossil Fuel Subsidy Reform (FFFSR) is a prominent example. The FFFSR has been variously described as a ‘norm entrepreneur’ (Rive Reference Rive2016),Footnote ¹ ‘ginger group’ (Gerasimchuk and Zamudio Reference Gerasimchuk and Zamudio2012: 5) and ‘influential epistemic community’ (Interview 2). Since 2010, the group has been active both publicly and behind the scenes in a range of activities and contexts ostensibly directed towards the stated objective ‘to support implementation of the existing commitment made by G20 Leaders in Pittsburgh in September 2009 to “rationalise and phase-out inefficient fossil fuel subsidies”’ (NZMFAT 2010: 2).

This chapter subjects the background, approach and strategies of the FFFSR to scrutiny. Drawing on constructivist-influenced frameworks for analysing international norm development, the analysis focuses on three aspects of the norm emergence cycle: (1) the framing of fossil fuel subsidies and fossil fuel subsidy reform, (2) the securing of support of state and non-state actors and (3) the strategic use of expertise and information to influence the behaviour of other states.

An analysis of the role and approach of the FFFSR in framing fossil fuel subsidies and subsidy reform confronts a perennial definitional issue – that is, whether and how to categorise particular subsidies and classes of subsidies as ‘inefficient’ and therefore in need of phasing out. The analysis also confronts another issue that has caught the attention of some sections of the international community: whether in the process of framing and addressing undesirable fossil fuel subsidies, production subsidies ought to be treated any differently from consumption subsidies. As discussed by Rive (Reference Rive2016), an examination of that issue reveals fault lines among the international community (and conceivably within the FFFSR and its associated networks) which, if unaddressed, may impede ongoing progress in reform.

Viewed from the perspective of Finnemore and Sikkink’s (Reference Finnemore and Sikkink1998: 895) ‘norm life-cycle’ hypothesis, the activities of the FFFSR over the period 2010–17 can be broadly seen as reflecting the behaviour of a norm entrepreneur in stage 1 (norm emergence) and early stage 2 (norm cascade). Stage 1 of the norm life-cycle centres on a norm entrepreneur with an organisational platform as the primary actor, using persuasion as its dominant mechanism for influence (Finnemore and Sikkink Reference Finnemore and Sikkink1998: 898). By stage 2, actors involved in the emergent norm diffusion have expanded to include states, international organisations and networks (Finnemore and Sikkink Reference Finnemore and Sikkink1998: 902). Dominant mechanisms of influence during this stage are socialisation, institutionalisation and demonstration. As the following account illustrates, the FFFSR have paid particular attention to the cognitive framing of fossil fuel subsidy reform and have extensively used ‘expertise and information to change the behaviour of other actors’ (Finnemore and Sikkink Reference Finnemore and Sikkink1998: 899). The FFFSR have also had some degree of success in securing the overt support of both state and non-state actors as part of a wider project aimed ultimately at socialising, embedding and internalising fossil fuel subsidy reform as a norm at the international and domestic levels.

This chapter is structured as follows. First, the nature of ‘friends’ coalitions is examined. The origins and drivers for the FFFSR are explored, leading into a discussion of membership. The matter of framing is then considered, followed by the strategic use of expertise and information to influence the behaviour of other actors. The final substantive section reviews the extent to which the initiative has had discernible influence on domestic practices and is followed by a brief assessment and conclusions.

9.2 Friends Groups in Global Governance

Friends groups have been part of the policy development and negotiating landscape within international trade, development, environment and disarmament contexts for many years. By their nature, such groups are flexible, dynamic and generally unhindered by formal constitutional structures. O’Malley (Reference O’Malley2014:10) defines ‘Friends groups’ as ‘coalition[s] of like-minded participants trying to influence group members and outside actors of the proper path forward to solve a problem using their own national interests as a guide’.

Friends groups operating within the World Trade Organization context include the Friends of Anti-Dumping Negotiations, Friends of Special Products (in agriculture negotiations), Friends of Ambition (Non-Agricultural Market Access), Really Good Friends in Services and Friends of Fish (WTO 2016). Friends groups have also been operational and effective in the international peace advocacy context as well as within international climate negotiations (Prantl Reference Prantl2005; Whitfield Reference Whitfield2007; Kjellén Reference Kjellén2010).

Although these types of Friends groups typically engage and cooperate with a variety of non-state actors (including non-governmental organisations (NGOs), corporations and intergovernmental organisations), their core membership is at the state level. Such groups thus can be seen as transgovernmental networks, defined by Slaughter (Reference Slaughter2004: 14) as ‘a pattern of regular and purposive relations among like government units working across the borders that divide countries from one another and that demarcate the “domestic” from the “international” sphere’. Referring to both Keohane and Nye (Reference Keohane and Nye1974) and Slaughter (Reference Slaughter2004), Raustiala (Reference Raustiala2003) observes that transgovernmental networks ‘involve specialised domestic officials directly interacting with each other, often with minimal supervision by foreign ministries. They are “networks” because this cooperation is based on loosely structured, peer-to-peer ties developed through frequent interaction rather than formal negotiation.’ Although they differ in emphasis and context, the descriptions of transgovernmental networks described by Keohane and Nye, Slaughter, and Raustiala all apply to the FFFSR. The group can also be conceptualised as a ‘minilateral’ initiative (van Asselt Reference van Asselt2014: 83) or ‘climate club’ (Weischer et al. Reference Weischer, Morgan and Patel2012), increasingly regarded as important elements of the evolving international climate change regime complex (Keohane and Victor Reference Keohane and Victor2011).

Unlike more formally established intergovernmental organisations or formal negotiating blocs, the effectiveness of Friends groups on international norm and policy development and negotiations largely does not depend on securing and wielding political ‘hard’ power, such as the use of a larger state’s market access to ‘encourage’ entry into a particular environmental agreement (for an example in the whaling context, see Hirata Reference Hirata2005: 132). Instead, it depends on their ability to network, influence, innovate, problem solve and profile raise. Slaughter regards such entities as integral to no less than a ‘new world order’. In terms that have particular resonance for the nine (all non-G20) members of the FFFSR, she suggests that ‘[i]n a world in which their ability to use their hard power is often limited, governments must be able to exploit the uses of soft power: the power of persuasion and information’ (Slaughter Reference Slaughter2004: 4).Footnote ²

At their best, Friends groups have the capacity to catalyse policy development in bureaucratic and complex negotiating environments, enabling normative leaps in processes typically limited to slow, incremental change. However, like other informal forms of normative development, questions arise about transparency, legitimacy and the consistency of adopted strategies with broader principles of international law (Young Reference Young2011). It is appropriate – as in this chapter and in other analyses by the author (Rive Reference Rive2016) – to subject the objectives and strategies of Friends groups to the same kind of scrutiny given to the negotiations towards policy and rule development in ‘harder’ international contexts.

9.3 Origins of and Drivers for the Friends of Fossil Fuel Subsidy Reform

Attempts to discern and analyse underlying state motivations for adopting particular foreign policy positions – in this case, to initiate or join an international coalition of countries explicitly focused on the elimination of ‘inefficient’ fossil fuel subsidies – are inevitably challenging. In some instances, statements by senior officials or other state representatives are publically available that may shed some light on the factors influencing decisions to be part of the FFFSR.Footnote ³ However, even when such statements are available, they need to be carefully scrutinised.

Nevertheless, it is useful to pay attention to domestic and international political and economic drivers for particular state involvement in an international fossil fuel subsidy reform project for at least two reasons. The first is that understanding what has motivated New Zealand and other countries to position themselves internationally as fossil fuel subsidy reformers may highlight factors and considerations directly relevant to the recruitment of other countries to the cause. The second reason (drawing on theories of norm emergence and diffusion referred to earlier) is that the effectiveness of the international norm entrepreneur on this policy – as on others – will depend at least in part on a perception of authenticity and credibility of position. Finnemore and Sikkink (Reference Finnemore and Sikkink1998: 904) note that ‘[b]ecause much norm advocacy involves pointing to discrepancies between words and actions and holding actors personally responsible for adverse consequences of their actions, one way to think about norm entrepreneurs is that they provide the information and publicity that provoke cognitive dissonance among norm violators’. It follows that if the norm entrepreneurs themselves are perceived as either disingenuous (in part or whole) in their role as norm advocates and/or are themselves regarded as demonstrating ‘discrepancies between words and actions’, their effectiveness may be impeded. A similar point is made by Andresen and Agrawala (Reference Andresen and Agrawala2002: 42), who, when examining the function of different forms of leadership in the climate regime, observe: ‘[c]heap and symbolic action does not qualify as leadership in this sense; some sacrifice has to be made to make it credible.’

The FFFSR was launched and is led by New Zealand, a small (population 4.6 million) member of the Organisation for Economic Co-operation and Development (OECD) with an economy heavily reliant on agricultural exports and tourism. The country has received acclaim from some quarters for having relatively successfully implemented domestic subsidy reform and economic restructuring (including, but not limited to, the agricultural sector; Tyndall Reference Tyndall2015). Generally, it is regarded as having adopted a proactive and engaged stance on selected areas of economic, environmental and security concerns at the global level since a least as early as the mid-twentieth century (Kennaway Reference Kennaway1999; Oram Reference Oram2007).

So what were the factors and influences that led New Zealand to embark on the Friends initiative? The initial impetus for the initiative appears to have been the 2009 G20 Pittsburgh Leaders’ Statement committing G20 members ‘to phase out and rationalise over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest’ (G20 2009; see also APEC 2009). New Zealand Cabinet papers show that planning for the launch of the FFFSR commenced in the months after the Pittsburgh Statement, culminating in a public launch in Paris in June 2010 (NZMFAT 2010: 3). At the launch, Vangelis Vitalis, who was then the New Zealand Deputy High Commissioner to Australia, announced New Zealand’s intention ‘to help and support the G20 in [its] endeavour on the reform of fossil fuel subsidies’ for which ‘setting up this group is an important step’ (Vitalis Reference Vitalis2010). From the outset, the initiative was intended as a forum for non-G20 countries (NZMFAT 2010), and it has maintained that membership criterion – understood as necessary to allow effective independent lobbying of G20 countries and the G20 grouping – as it has evolved.

New Zealand government announcements on the initiative have emphasised two main drivers for New Zealand’s decision to convene the FFFSR. The first was a desire for (other) countries to benefit from the fiscal advantages of reducing public spending on fossil fuel energy subsidies, including the freeing up of public funds for other priority policy objectives such as health and education. The second concerned environmental and climate change benefits, which have increasingly been associated with fossil fuel subsidy reform (NZMFAT 2010). These reasons align with a broader and long-standing strategy for New Zealand to position itself internationally as environmentally conscious and a proactive, engaged and responsible global citizen (Kennaway Reference Kennaway1999; Oram Reference Oram2007).

The 2010 New Zealand Cabinet papers highlight other underlying objectives that are not so obviously aligned with New Zealand’s international positioning strategy. Among them is the country’s aim to help secure stronger international disciplines for the limiting of agricultural subsidies in key overseas markets (Rive Reference Rive2016). It is acknowledged that in this respect, New Zealand’s mixed motives for its leadership role in the FFFSR are neither unusual for any significant foreign policy venture, nor do they necessarily undermine the utility of the project. However, if the underlying motivation for the initiative is at least in part different from the professed drivers, that is relevant to a political economy analysis of the activities of the FFFSR as well as an informed assessment of its norm-building endeavours.

9.4 Securing Support of State and Non-State Actors

As observed by Finnemore and Sikkink (Reference Finnemore and Sikkink1998), a feature of the first stage of the norm emergence process is securing the support of other state and non-state actors. In the case of the FFFSR, while the process has been iterative and is still evolving, it has involved two main phases. The first was the process of New Zealand securing additional members of the core Friends group. The second phase involved expanding the circle of overt (but necessarily more diffused) support by state and non-state actors through the 2015 Fossil-Fuel Subsidy Reform Communiqué.

9.4.1 Expansion of the Friends Membership

At its launch in November 2010, New Zealand named only one other country as a founding member of the FFFSR: Sweden. However, it made clear that additional members would be recruited, provided that they met the criteria of being ‘serious, credible, countries that share our interest in a high-ambition and transparent outcome from the G20 on the reform of fossil fuel subsidies’ (Vitalis Reference Vitalis2010).

Over the following 12 months, six additional countries joined the group so that, by the end of 2011, membership had grown to eight: Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden and Switzerland (IISD 2011). Figure 9.1 shows the current members of the FFFSR (including Uruguay, which joined in April 2016), highlighting overlapping memberships over a number of formal and informal organisations and groupings.

Figure 9.1 Overlapping member groupings of the Friends of Fossil Fuel Subsidy Reform

(Source: Created by the author based on a figure from Gerasimchuk and Zamudio (Reference Gerasimchuk and Zamudio2012: 4).)

Figure 9.1 shows several significant common memberships, reflecting the tendency of relationships developed through existing networks to be leveraged into additional alliances through personal contacts. The largest membership grouping within the FFFSR belongs to the Global Research Alliance on Agricultural Greenhouse Gases, another New Zealand-led initiative launched in December 2009 ‘focused on research, development and extension of technologies and practices that will help deliver ways to grow more food (and more climate-resilient food systems) without growing greenhouse gas emissions’ (GRA 2017). The membership of Costa Rica and Uruguay – which are relative ‘outsiders’ compared to the group of OECD/small advanced economy grouping – might be partly explained by the existing connections with the Global Research Alliance.Footnote ⁴

The next-largest membership is that of the OECD: six of nine members are developed countries (also listed in Annex II to the United Nations Framework Convention on Climate Change (UNFCCC)). Within the six OECD members is a significant subgroup of Nordic countries (Denmark, Finland, Norway and Sweden) – regarded by at least some commentators (alongside the European Union more generally) as proven norm entrepreneurs on environmental and other areas of international policy and therefore potentially seen as natural members of a progressive coalition on fossil fuel subsidy reform (e.g. Lawler Reference Lawler1997; Ingebritsen Reference Ingebritsen2002; see also Bandarage Reference Bandarage2010). Four members are part of the Small Advanced Economies Initiative, an international working group comprising Denmark, Finland, Ireland, Israel, New Zealand, Singapore and Switzerland (Small Advanced Economies Initiative 2017).

The minority sub-grouping of Costa Rica, Uruguay and Ethiopia, which are all members of the Group of 77 and non–Annex I members of the UNFCCC, stand apart from the six OECD members. Of these three, as already noted, Costa Rica and Uruguay were already part of the Global Research Alliance, leaving Ethiopia as the outlier. But Ethiopia’s presence within the FFFSR can be explained by its interest in and commitment to fossil fuel subsidy reform (Sintayehu Reference Sintayehu2014), as well as the credibility and balance it provides in what might otherwise be regarded (at least in relation to the six OECD members) as an elite ‘club’.Footnote ⁵

9.5 The Friends’ Framing of the Emergent Fossil Fuel Subsidy Reform Norm

An important component of the norm emergence process theorised by Finnemore and Sikkink (Reference Finnemore and Sikkink1998) is the act of ‘framing’ by norm entrepreneurs (see also Chapters 5 and 8). The process of framing is dynamic, iterative and frequently involves both the reframing of existing concepts and norms and the contestation with potentially opposing norms (Busby Reference Busby2007). All these processes can be observed in relation to the FFFSR initiative.

The FFFSR is by no means the first group to take up the issue of the need to reform fossil fuel subsidies, nor to frame them as a pressing contemporary issue for action. At least as early as the 1970s, academics such as Hudson (Reference Hudson1977) had identified and discussed the negative resource implications of energy subsidies. As climate change climbed global agendas in the 1980s and 1990s, the link between fossil fuel subsidies and increasing emissions became a focus of analysis by economists and policymakers (Steenblik and Wigley Reference Steenblik and Wigley1990; Anderson and McKibbin Reference Anderson and McKibbin1997).

Implicit in both the G20 and APEC statements is a reframing of a conception of fossil fuel subsidies as a legitimate government tool to enhance economic development, energy security and welfare into a normative conception that is broadly negative in fiscal and environmental terms. The potential for energy subsidies to be used for the support of economically disadvantaged sections of the polity is recognised and guardedly affirmed (‘while providing targeted support for the poorest’). It is also acknowledged that there may be some categories of fossil fuel subsidies which are ‘efficient’ and therefore acceptable.

As noted above, from the outset, the FFFSR explicitly and deliberately linked its objective and raison d’être to the G20 Pittsburgh Statement. In early material produced on behalf of the FFFSR, it was made clear that the coalition was not advocating for the elimination of all fossil fuel subsidies, but rather the reform of inefficient fossil fuel subsidies (NZMFAT, 2010). In this regard, and concerning the reframing of conceptions of fossil fuel subsidies generally, FFFSR adopted a position that reflected emerging trends within the G20 and APEC and was supported in particular by the International Energy Agency (IEA), OECD and other international organisations (e.g. IEA et al. 2010).

The FFFSR adopted two further framing strategies during the period 2010–14 that are notable. The first was an emphasis on the domestic fiscal opportunity costs of governments (particularly of developing countries) who devote significant volumes of public funds to fossil fuel subsidies rather than applying limited funds to more ‘worthy’ ends, such as public health facilities or education.Footnote ⁷ The second was to focus on the negative climate change consequences of fossil fuel subsidies, a theme developed and repeated in every communication on the topic and prominent in the communiqué.

The G20, APEC and FFFSR all used the qualifier ‘inefficient’ in framing unacceptable fossil fuel subsidies, but an important observation is that no clear definition or explanation of what is meant by ‘inefficient’ has ever been identified, publicly at least. As a criterion, ‘inefficient’ is capable of having multiple meanings, and in public policy contexts it remains a highly flexible and contestable concept (Alexander Reference Alexander and Meijers2009). In this regard, an emerging norm focused on the medium-term phase-out/rationalisation of inefficient fossil fuel subsidies shares an inherent degree of flexibility and ambiguity with other emergent norms at the international level, such as ‘sustainable development’.Footnote ⁸

As observed by Hadden and Seybert (Reference Hadden and Seybert2016) in their analysis of the trajectory of sustainable development as an evolving international norm, the ‘shifting content’ of the norm is at once an explanation for its rapid diffusion but also its disappointing performance. A vague and flexible commitment is far easier to both sell and accept, but it inevitably carries the greater risk of disappointing levels of material change in policy and practice change.

9.6 Strategic Use of Expertise and Information to Influence the Behaviour of Other Actors

A further element of the early stages of the norm emergence cycle is the strategic use of information and expertise by norm entrepreneurs to influence other actors (Finnemore and Sikkink Reference Finnemore and Sikkink1998). Scholars such as Payne (Reference Payne2001) offer more sophisticated theories of this aspect of the norm diffusion process than Finnemore and Sikkink, maintaining the ongoing relevance (and empirically observed use) of traditional ‘material’ levers as part of the process of persuasion, in addition to the inherent persuasive power of ideas and norms themselves. Payne (Reference Payne2001: 39) also invites attention to the ‘social process’ within which persuasion of actors is attempted or achieved, which in his view ‘almost certainly matters more than the content or framing of specific messages’ (see also Risse Reference Risse2000). However, despite differences in emphasis, there is reasonable recognition (at least among constructivist-leaning theorists) of the role of strategic information and expertise sharing as part of norm diffusion in an increasingly globalised and interconnected world.

The FFFSR placed targeted dissemination of information and expertise at the heart of their strategy from the beginning (NZMFAT 2010: 7–8). Working closely with professionally qualified officials, diplomats and experienced ministers – and drawing on the skills of aligned NGOs such as the Geneva-based Global Subsidies Initiative (see Chapter 10) – the FFFSR have engaged in a programme of information and expertise sharing across a wide spectrum of forums, including the EU, G20, APEC, World Bank, IMF, UNFCCC and others.Footnote ⁹

From official documents, public statements and discussions with individuals involved in strategy development and implementation of the FFFSR, it is apparent that from the outset there was clear recognition that the group would need to adopt a targeted and strategic approach to dissemination of its core messages, relying upon credible expertise and practical information as opposed to blunt diplomatic force. Indeed, this approach was the only realistic one available to New Zealand and the Friends, none of whom individually are able to exert significant influence on other major state or non-state actors through economic, military or other means.

Two notable initiatives in which the FFFSR have played a catalytic expert role have been the pilot peer-review processes recently launched within APEC and the G20. As convener of the FFFSR, New Zealand played a leading role in establishing the process for peer review of fossil fuel subsidies within APEC, volunteering along with Peru to participate in a first round of peer reviews completed in 2015 (APEC 2015; see also APEC 2014). The FFFSR have also played a part in promoting and technically supporting the voluntary peer review process within the G20 (FFFSR 2013), which resulted in a first round of reviews involving the United States and China in 2016. A second round involved Germany and Mexico (OECD 2016).

Part of the FFFSR’s approach has been to take opportunities to present and engage with other actors on conceptual, economic and practical aspects of fossil fuel subsidy reform at events at which relevant actors would be present for other reasons. One such high-profile gathering of state officials, professionals, business representatives and members of civil society is the annual Conference of the Parties to the UNFCCC. The FFFSR have organised or participated in dedicated side events on fossil fuel subsidy reform at every annual meeting since 2011 and have undoubtedly had opportunities for informal engagement with key players at those events (see also Chapter 8).Footnote ¹⁰

9.7 What Impact Has the FFFSR Initiative Had at the Domestic and International Levels?

In 2013, one of the architects of the initiative, Vangelis Vitalis, professed that the initiative had been effective ‘beyond [his] wildest dreams’ (Interview 1). However, it is doubtful that he meant that there was then, or is now, clear evidence of material changes in domestic practices that can be directly attributed to the FFFSR activities.

No empirical analyses have been undertaken (or at least published) on the concrete impacts of the FFFSR activities, meaning that there is inevitably a degree of speculation involved in assessing the success of the venture. What can be said is that there have been material procedural advances at the international level that can be fairly linked to the ongoing advocacy and profile raising of the FFFSR. The securing of a wider network of state and non-state actor support through the Communiqué can be regarded as a material procedural achievement directly flowing from the FFFSR initiative. So too is the ushering in of a voluntary peer-review process for (self-selected) state fossil fuel subsidy practices within the G20 and APEC.

The voluntary peer reviews that have occurred so far fall short of explicit state commitments to the elimination of fossil fuel subsidies. However, frameworks are now in place within the G20 and APEC which may, in time, bear fruit. One reason for optimism in this regard is the constraining influence of transparency through voluntary peer-review processes – even if that influence, as Bianchi (Reference Bianchi, Bianchi and Peters2013: 5) puts it, plays ‘an accessory, secondary role’ to more direct normative obligations (see also Aldy Reference Aldy2017). The second reason – which also applies to membership of the FFFSR itself as well as signatory status under the Communiqué – is that various forms of public commitment to fossil fuel subsidy reform increase the scope for ‘rhetorical entrapment’ (Schimmelfennig Reference Schimmelfennig2001) by opening opportunities for domestic non-state actors to hold their state to account against the norm of subsidy reform.

An example of exactly this kind of NGO pressure was the widely reported ‘fossil of the day’ award to New Zealand at the UNFCCC Conference of the Parties in Paris in 2015 for ‘urging countries to phase out fossil fuel subsidies’ while maintaining production subsidies on the order of tens of millions of USD itself (Rive Reference Rive2015). Criticism over inconsistency on the matter of production subsidies has not been limited to New Zealand. Concerns have also been raised with FFFSR’s apparent focus in published material and in international presentations on the (perceived) priority task of eliminating fossil fuel consumption subsidies in oil-, coal- and gas-producing developing countries while accommodating ongoing subsidisation of fossil fuel production within developed countries, including the OECD members of the FFFSR (Rive Reference Rive2016).

The (admittedly narrow, but nevertheless material) criticisms that have been levelled at the FFFSR raise reasonable questions as to whether a ‘thicker’ process of engagement with a wide range of international and non-state actors would be appropriate. Such a process could address concerns about the consistency of FFFSR strategy with broader principles of international equity and, potentially, with the specific principle of ‘common but differentiated responsibilities and respective capabilities’ that forms part of the UNFCCC and several other relevant international environmental legal frameworks.Footnote ¹¹ At the time of writing, no alteration to the FFFSR approach in this regard is apparent. It remains to be seen how, if at all, the group will respond to expressions of concern.

9.8 Conclusion

This chapter has examined whether particular constructivist-influenced theories of norm emergence and contemporary scholarship on the role of transgovernmental networks and ‘minilateral’ initiatives assist in understanding and assessing the role of the FFFSR in contributing to fossil fuel subsidy reform at the national and international levels. In material respects, the activities of the FFFSR reflect Finnemore and Sikkink’s conception of a norm entrepreneur through its theorised stage 1 (norm emergence) and early parts of stage 2 (norm cascade). The FFFSR’s strategy has included the successful securing of the support of state and non-state actors, achieved in the first instance through the managed expansion of the Friends’ core state membership and subsequently the wider engagement with state and non-state actors through its Communiqué. Following the lead of a number of international organisations (notably the G20, APEC, OECD and IEA), the Friends have adopted framing and reframing strategies that have contributed to emerging expectations concerning the appropriateness of fossil fuel subsidies internationally and at the national level. The FFFSR have also engaged in strategic use of expertise and information to influence the behaviour of other actors, notably through contributions to the establishment of voluntary peer-review initiatives within APEC and the G20 – initiatives that appear set to expand in both organisations following successful pilots in 2015 and 2016, respectively.

Procedural advances at the international level can be fairly linked to the activities of the FFFSR. However, considerable work remains before any credible claim could be made for the maturing of an emergent norm for the disciplining of harmful fossil fuel subsidies (see also Chapter 5). A critical element of ongoing subsidy reform policy development is a clearer understanding of what is meant by ‘inefficient’, a central limiting criterion in almost all intergovernmental commitments to the rationalisation and phase-out of fossil fuel subsidies. Meaningful responses are also required – in particular, from the FFFSR – to legitimate concerns over the implicit and explicit prioritisation of the elimination of fossil fuel consumption subsidies in developing countries over the need to address and curb ongoing generous subsidisation of fossil fuel production within developed countries.

If accompanied by a process of open engagement, debate and interaction, the community of endorsees currently represented by an expanding list of logos on the FFFSR website might conceivably approach something akin to a broad-based transnational policy network, with enhanced measures of legitimacy, accountability and – ultimately – normative power.

Acknowledgements

The author acknowledges the generous support of the New Zealand Law Foundation in relation to the research leading to this chapter and associated outputs.

10.1 Introduction

Amid the more recent push for fossil fuel subsidy reform, the Global Subsidies Initiative (GSI) was an early entrant into the political fray and arguably played a significant role in catalysing global action. Since it was established by the International Institute for Sustainable Development in 2005, the GSI has become a key player in international and domestic efforts to reform fossil fuel subsidies. This chapter examines the GSI’s catalytic role in promoting and maintaining the momentum of subsidy reform as an issue with global resonance. It focuses on the political mechanisms through which the GSI has generated interest in, and promoted, subsidy reform and its specific impacts on intergovernmental organisations (IGOs) and the national governments of India and Indonesia.

Our focus on politics responds to the dearth of such research on fossil fuel subsidy reform (see Chapter 1). Moreover, most of those studies focus on country-level or IGO-led efforts (Doukas Reference Doukas2016; Van de Graaf and van Asselt Reference Van de Graaf and van Asselt2017; see also Chapter 3). While valuable, our attention to the role of the GSI – a non-governmental organisation (NGO) – adds an important aspect of the global subsidy reform politics story previously neglected.

Given that the world’s economic, energy and transportation systems are locked into carbon (Unruh Reference Unruh2000; Seto et al. Reference Seto, Davis and Mitchell2016), these subsidies exist within fossil fuel–reliant economies where producers and consumers typically claim to ‘need’ and ‘deserve’ support and where subsidies are seen as essential for economic growth. Given this dominant frame, we need an approach that explains the political dynamics – leveraged and catalysed by the GSI – that led to the disruption of this conventional wisdom. Furthermore, such an analysis should provide insight into whether that disruption is durable and likely to catalyse and scale actions towards ending fossil fuel subsidies.

To this end, we focus on three political mechanisms identified by Bernstein and Hoffmann (Reference Bernstein and Hoffmann2016) by which purposeful interventions (such as the GSI) attempt to disrupt the status quo of carbon locked-in systems (such as those which support fossil fuel subsidies): coalition building, capacity building and normalisation. Because our starting point is a single important actor and mechanisms of influence, we do not make claims about the ultimate causes of fossil fuel subsidy reform. Rather, focusing on these mechanisms at both the international and domestic levels allows us to identify the processes through which the GSI generated influence and trace how it catalyses change and/or induces more actors to pursue change (scaling) and whether these effects show evidence of durability or resistance to reversal (entrenchment). Our focus is therefore on how an intervention such as the GSI produces effects and disruption. Initiatives to disrupt the status quo will also, inevitably, interact with other causal factors such as economic and political interest; indeed, the GSI aims precisely to affect those interests, and the mechanisms identified provide insight into how this could occur.

The chapter proceeds as follows. First, we provide an historical overview of the GSI’s work. Second, we elaborate on how the three political mechanisms work to catalyse change. We then analyse the political dynamics that the GSI catalysed and their impact on fossil fuel subsidy reform. Throughout, we focus especially on the cases of India and Indonesia. Both are currently implementing significant subsidy reform (see Chapters 11 and 12). Moreover, relative to the other countries it targeted, the GSI has devoted substantial resources to those reform efforts, meaning that they provide clear illustrations of many of the dynamics under examination. For evidence of these mechanisms and impacts, we draw from a variety of primary and secondary sources, as well as interviews conducted via telephone and in person at the GSI office in Geneva between 23 April 2014 and 8 August 2016.

10.2 The Global Subsidies Initiative’s Role

The beneficiaries of fossil fuel subsidies are, not surprisingly, wary of subsidy reform because it may erode the benefits they receive or diminish the ability of a government to maintain power (Victor Reference Victor2009). Thus, to disrupt this aspect of carbon lock-in and reform fossil fuel subsidies, political change is needed. Analysing such change requires attention to interventions such as the GSI that aim to disrupt the fossil fuel subsidy system.

In 2005, the International Institute for Sustainable Development, a Canadian NGO that works globally on sustainable development issues, marshalled funding from several European countries and philanthropic foundations to found the Global Subsidies Initiative, based in its Geneva office.Footnote ¹ Originally, the GSI focused on biofuel subsidy reform, but since 2009, it has largely focused on reforming fossil fuel subsidies, which represents around 70 to 75 per cent of total GSI expenditures (Danida 2015; GSI 2016b). In 2016, the GSI was a 10-person team with an annual budget of USD 2 million (GSI 2016a).Footnote ² The organisation also contracts with many external consultants and national research institutes to undertake country-level analysis and facilitate engagement on subsidy reform.

In general terms, the GSI helps improve the ability of countries and organisations to estimate subsidies, evaluates options for subsidy reform and communicates those options to the public. The GSI has published dozens of research reports on the characteristics of producer and consumer subsidies, identified lessons for reform, conducted country-specific research and reported on subsidy estimation methods. Communication of its findings to non-experts is also a major activity. It publishes the Subsidy Watch Blog, publicises subsidy reform-related events and news articles on its website, produces policy brief versions of many of its reports and provides an online archive of subsidy reform research from a host of organisations.Footnote ³ The GSI also facilitates discussions on fossil fuel subsidy reform among key governments, NGOs and IGOs, including through the organisation of side events at major international meetings, such as the Conferences of the Parties to the United Nations Framework Convention on Climate Change, the 2012 United Nations Conference on Sustainable Development (Rio+20), the Group of 20 (G20) and the Asia-Pacific Economic Co-operation (APEC) forum. It also acts as a consultant that governments, IGOs and NGOs hire on a pro-bono basis for technical and communications advice on subsidy reform (GSI 2016b). Since 2010, the GSI has targeted subsidy reform in Brazil, Canada, China, France, Ghana, India, Indonesia, Iran, Italy, Malaysia, Mexico, North Sudan, Poland, Russia, Senegal, South Africa, Turkey and Ukraine.

10.3 Analysing the Global Subsidies Initiative’s Impact

Assessing the GSI’s impact entails tracing the political ramifications of its activities. The mechanisms through which these activities can produce impacts include capacity building, coalition building and normalisation on both the national and international levels (Bernstein and Hoffmann Reference Bernstein and Hoffmann2016).

Coalition building can help interventions strengthen ties across a wide variety of political actors and build necessary alliances. For example, an NGO can catalyse coalitions by framing an issue in ways that allow disparate actors to see common interests and benefits and that actively try to build a social movement around that frame, ideally generating commitment to a longer-term campaign (Tarrow Reference Tarrow2005; Levi and Murphy Reference Levi and Murphy2006). Coalition building is facilitated by identifying and building linkages among ‘winners’ who benefit from change and neutralising ‘losers’. It can even include ‘baptist-bootlegger’ coalitions of activists and businesses if changes reward those already engaging in practices that could benefit from policy changes (Vogel Reference Vogel1995; Levin et al. Reference Levin, Cashore, Bernstein and Auld2012).

Capacity building can take a number of forms, including ‘direct funding, education, training, [technical] assistance, and co-governance via partnerships between public and private actors and authorities’ (Bernstein and Cashore Reference Bernstein and Cashore2012: 593; Weible and Sabatier Reference Weible and Sabatier2014). In this case, the most relevant means are knowledge based (e.g. information and learning processes, especially about policy options and effects), technical expertise and demonstration effects (Selin and VanDeveer Reference Selin and VanDeveer2009; Bernstein and Cashore Reference Bernstein and Cashore2012).

Normalisation can be catalysed by interventions when they reframe notions of appropriate action or support arguments and advocacy that persuade others to accept new norms (Finnemore and Sikkink Reference Finnemore and Sikkink1998; Keck and Sikkink Reference Keck and Sikkink1998; see also Chapter 5). In tandem with capacity building (learning and demonstration effects), normalisation can usher in a new common sense for decision-makers.

An intervention such as GSI – which may spark these political mechanisms – is crucial for disrupting the taken-for-grantedness of fossil fuel subsidies for the simple reason that the largest obstacles to political change include existing coalitions that support subsidies, insufficient technical capacity to make the case for reform and popular beliefs that subsidies are beneficial or do not exist. In Indonesia, where fuel subsidies sometimes account for 20 per cent of central government spending (Owen Reference Owen2016), popular resistance to subsidy reform has been particularly acute (Pradiptyo et al. Reference Pradiptyo, Wirotomo, Adisasmita and Permana2015). An International Monetary Fund (IMF) study of 22 countries that have attempted subsidy reform found that opposition to reform was highly dependent on the national context. In some countries, trade unions played a key role; in others, national oil companies or pro-poor political parties did so (IMF 2013). According to the IMF (2013), the difficulty faced by policymakers who want to implement reform often stems from making changes too drastically over a short period of time, with little information, compensation or alternatives provided to concerned groups. In India and Indonesia, until recently, the public and even government officials knew little about energy subsidies. Several interviewees noted the limited knowledge and engagement of journalists and consumer-protection NGOs on subsidy reform; similarly, several noted the limited expertise within the bureaucracy (Interviews 1 and 2). This limited capacity has made the normalisation process more difficult for the GSI.

Thus, the political mechanisms provide the potential for the GSI to have a catalytic impact on subsidy reform. This impact is observable in the way that the GSI’s campaign goals spread to other actors (scaling) and become durable or embedded (entrenchment) in policies and programmes. Below we elaborate on how these mechanisms played out in the GSI case.

10.4 Conclusion

This chapter has underscored the importance of politics in achieving fossil fuel subsidy reform. The key to implementing reform is not simply finding the right technical solution based on the most appropriate methodology or even timely high-level support, although both help. Rather, it is in understanding how fossil fuel subsidy reform gains support or is resisted.

The GSI is a small but well-connected and influential NGO that has had an important catalytic impact on efforts to reform fossil fuel subsidies at the international level and the national level, as illustrated here in the cases of India and Indonesia. Serious obstacles to durable reform remain (Van de Graaf and van Asselt Reference Van de Graaf and van Asselt2017), but the GSI has played an important catalytic and entrepreneurial role in shifting the politics of subsidy reform at both national and international levels by building capacity through technical analyses and local partnerships, by building and supporting coalitions through the FFFSR and assistance to IGOs and by normalising subsidy reform through consistent and strategic engagement.

Acknowledgements

The authors thank participants at the ‘Earth System Governance’ conference at the University of East Anglia (1–3 July 2014) and at the workshop on ‘The Politics of Fossil Fuel Subsidies and their Reform’ held at the Stockholm Environment Institute (16–17 June 2016), two anonymous reviewers and the editors for detailed comments and suggestions. We also gratefully acknowledge financial support from the Social Sciences and Humanities Research Council of Canada through the Insight Grant program (Award No.: 494836).