Low oil prices have created a window of opportunity for fossil fuel subsidy reform needed to reduce carbon emissions and fight climate change. Energy and finance officials from the 21 APEC economies are building capacity in the region to take advantage of it.
Officials have identified challenges and best practices to facilitate the implementation of subsidy reforms by APEC economies, based on discussions that took place in Honolulu in December. They are also taking forward a peer review system for ensuring that these reforms address inefficiencies within the sector that are an increasing concern for the region.
“Inefficient subsidies are a fiscal drain on government budgets, encourage wasteful fossil fuel consumption with climate implications and impede investment in clean, renewable energy development,” explained Dr Phyllis Genther Yoshida, Chair of the APEC Energy Working Group, which is guiding the reform initiative. “Many fossil fuel subsidies have become regressive and often fail to properly target the poor and vulnerable populations they are intended to help.”
“The timing for reform is a key consideration given the domestic sensitivity of this issue,” added Dr Yoshida, who is from the United States Department of Energy. “The current low oil prices offer a window of opportunity for economies to move towards market prices in a way that eases public anxiety while building the resilience of their reform structure to insulate against price fluctuations globally.”
Around half a trillion dollars are funnelled into fossil fuel subsidies worldwide each year, nearly four times the amount for renewable energy, according to the International Energy Agency. It is estimated that less than eight per cent of these subsidies reach the poorest 20 per cent of the population.
“Fossil fuel subsidies are a complex, structural challenge, which is providing impetus for APEC economies to work together to strengthen their technical bandwidth to adopt effective and sustainable reforms.”Dr Yoshida noted. “APEC has now completed peer reviews of fossil fuel subsidies in three member economies to help them identify options for reform and is offering peer reviews and capacity building activities for other economies to build on this momentum.”
The peer review system and related exchanges of technical expertise between APEC economies, stakeholders and partner organizations support the mandate from the region’s Leaders to rationalize and phase out inefficient fossil fuel subsidies while providing essential energy services to those in need. The G20, whose membership includes nine APEC economies, is mirroring this approach and is implementing a comparable peer review arrangement.
Officials underscored the importance of transparency and extensive communication to achieve successful subsidy reform. This includes efforts by governments to explain to the public and the private sector the real impact of subsidies and their limitations, as well as the potential benefits of reform. Detailing their strategy for reform, tracking the implementation of measures, reporting on progress and mitigating unintended affects were also viewed as critical to upholding support.
“The fiscal savings from fossil fuel subsidy reform are potentially huge and can be redirected to cleaner, renewable energy options and other social services that can better meet the needs of the public,” Dr Yoshida concluded. “It is critical that governments make the benefits of reform sufficiently known to their constituents for policy changes to take hold and to realize their desired results.”
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