Fossil Fuel Subsidy Disciplines in the Agreement on Climate Change, Trade and Sustainability

Non-Confidential Summary

For the New Zealand Ministry of Foreign Affairs and Trade

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Carbon emissions from the use of fossil fuels are one of the major causes of climate change, threatening disastrous and irreparable harm to the environment and human civilization. Mitigating the impacts of climate change will require reducing worldwide consumption of fossil fuels, yet many governments maintain subsidy programs to assist producers and consumers of fossil fuels. Although international institutions such as the OECD, G20 and UN have acknowledged the importance of reforming these subsidy programs, little progress has been made.   

Against this backdrop, Costa Rica, Fiji, Iceland, New Zealand, Norway and Switzerland have agreed to negotiate the Agreement on Climate Change, Trade & Sustainability (ACCTS), an agreement that envisions bringing together trade, climate change, and sustainable development objectives. A major goal of the ACCTS is to establish commitments to eliminate fossil fuel subsidies. As such, the ACCTS will include obligations on fossil fuel subsidy reform with the primary objective of disciplining fossil fuel subsidies.   

Our memorandum provides options for the structure and substance of legal obligations on fossil fuel subsidy reform. It focuses on four main components: definitions and scope, primary commitments (both notification and reduction commitments), development, and exceptions. Each of the countries involved in the ACCTS are supporters of multilateral cooperation on fossil fuel subsidy reform. For this reason, the memorandum draws heavily on lessons learned from existing multilateral agreements including the Agreement on Subsidies and Countervailing Measures, the Agreement on Agriculture, the Trade Facilitation Agreement, as well as the experience gained during the ongoing fisheries subsidies negotiations. The memorandum concludes with recommendations as to which options are best suited to achieving the objectives outlined by the beneficiary.

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