Amidst heated discussion over the future of fossil fuels at COP28, the Netherlands has launched a coalition to phase-out fossil fuel subsidies.
The coalition maintains three major pillars: transparency, international agreements, and national action. This implies that member countries will have to publish an overview of their fossil fuel subsidies before next year’s COP29, address international barriers to phasing out subsidies, and share strategies on how to best conduct national phase-outs and minimize carbon leakage.
Along with the Netherlands, the coalition includes Austria, Belgium, Ireland, Spain, Finland, Antigua and Barbuda, Canada, France, Denmark, Costa Rica, and Luxemburg.
"Fossil fuel subsidies have no place in a clean economy and must be phased out,” said Rob Jetten, Minister for Climate and Energy. “This is why the Netherlands already started the phase-out for some 4.8 billion euros. At the same time, we see that half of all subsidies are tied up in international agreements and we must therefore cooperate with other countries. Therefore, I’m happy and proud to launch an international coalition to reduce fossil fuel subsidies together. We do this by creating transparency, addressing international agreements, and working together on national phase-outs."
In 2022, the International Renewable Energy Agency reported that renewable energy sources have become cheaper than fossil fuels. As alternative, clean energy sources become more affordable, an increasing number of countries have started working to phase-out fossil fuel subsidies to encourage clean energy investment.
Multiple world organizations, including the International Monetary Fund (IMF) and the International Energy Agency (IEA), claim that phasing out fossil fuel subsidies would benefit both climate goals and government budgets. According to the IMF, fossil-fuel subsidies reached a record-breaking $7 trillion last year as governments worked to support consumers and businesses during a spike in global energy prices.
This value is reportedly 7.1% of global GDP.
Subsidies are often used to protect consumers from high international fuel prices but also keep fossil fuels competitive with clean energy alternatives. Subsidies are meant to protect the most vulnerable from high fuel prices, especially in developing countries, but the IEA said that subsidies are rarely well-targeted to protect these groups and typically disproportionately benefit populations that are better off.
As the economic costs of environmental damage from climate change increase and worsen from the burning of fossil fuels, the IMF claims that now is the time to phase out government subsidies for fossil fuels. Doing so is estimated to avoid 1.6 million premature deaths each year and raise government revenue by $4.4 trillion.
The IMF also recommends careful, collaborative phase-outs, with a portion of increased revenues going to support vulnerable households if energy prices increase.
G20 leaders made pledges to phase-out fossil fuel subsidies more than a decade ago, and the development of this coalition at COP28 marks one of the first major undertakings towards this goal.
