Closing off the taps: time for the G20 to phase out fossil fuel subsidies 

At the G20 Pittsburgh Summit in 2009, countries pledged to phase out and rationalise fossil fuel subsidies “over the medium term”. Fifteen years on, not only have they failed to make progress but subsidies have largely increased. Setenay Hizliok, Giorgia Monsignori and Antonina Scheer explore the domestic commitments of G20 countries to phase out these subsidies and call for further action and transparency on international and national efforts. 

Following the global energy crisis and spikes in energy prices, the International Monetary Fund (IMF) calculates that explicit fossil fuel subsidies more than doubled from 2020 to 2022, reaching $1.3 trillion. This amounts to $7 trillion when implicit subsidies are considered (i.e. retail prices that do not reflect the full cost of externalities such as greenhouse gas emissions and air pollution).  

According to the Fossil Fuel Subsidy Tracker, only 32% of G20 countries reduced fossil fuel subsidies as a share of GDP between 2010 and 2022. In this commentary, we track how joint phaseout commitments are reflected in the domestic policies of G20 countries.  

The case for ending fossil fuel subsidies  

Fossil fuel subsidies contradict the Paris Agreement (Article 2.1.c) by wasting public financial resources on assets that could become stranded and encouraging producers and consumers to maintain their reliance on carbon-intensive energy sources. These subsidies are economically inefficient and environmentally harmful, distorting optimal market prices and supporting polluting activities.  

Phasing out fossil fuel subsidies is a key part of the low-carbon transition, complementing other mitigation policies like carbon pricing and green subsidies. According to the IMF, removing explicit fossil fuel subsidies can reduce global CO₂ emissions by 5% by 2030 from business-as-usual levels. This reduction would reach 43% if implicit subsidies were also addressed through comprehensive carbon pricing. 

Political, social and economic concerns may hamper the phaseout because subsidies are often used to target a certain sector (e.g. agriculture) or group (e.g. low-income households) that is vulnerable to high energy costs. Producer subsidies in particular tend to persist due to energy security concerns or current growth models that generate taxable revenues from the fossil fuel industry. The removal of these subsidies may raise social justice or economic competitiveness concerns. Implementing fossil fuel subsidy reform with targeted compensation, green economy models or enhanced international cooperation could help address such concerns. 

Milestones in phaseout commitments  

The first joint pledges to phase out inefficient fossil fuel subsidies were stated in 2009 by the G20, G7 and the Asia-Pacific Economic Cooperation Forum (APEC). Over the years, these groups have reaffirmed their pledges while other joint statements in broader global forums have emerged as part of the UN Sustainable Development Goals, and the UN climate conferences COP26, COP27 and COP28.  

These commitments acknowledge the need to eliminate fossil fuel subsidies and thus represent an important foundation for action. However, they often lack detail and therefore credibility. The G7 is the only country group to have established a deadline, which is set for 2025. These commitments also open up an ambiguous loophole by focusing specifically on so-called ‘inefficient’ fossil fuel subsidies. These are often defined as subsidies that ‘encourage wasteful consumption’ or that ‘do not address energy poverty or just transition’.  

Recent developments show that countries are taking a step in the right direction, albeit belatedly. G7 countries have been committing to further transparency and exploring joint fossil fuel subsidy inventories since 2022 and finally agreed to work towards a common definition of ‘inefficient’ fossil fuel subsidies in 2024. At COP28, 12 countries made pledges that went beyond transparency and international cooperation. Now a coalition of 13 members, they are releasing national fossil fuel subsidy inventories at COP29 and will state national phaseout plans next year at COP30. 

Commitments in action: addressing gaps in measuring progress at the country level 

The lack of progress monitoring is a serious gap: none of the joint commitments to phase out subsidies are tracked consistently or regularly. Although the 2030 SDG Agenda calls on countries to report how much they spend on fossil fuel subsidies, none of the G20 countries do this on a regular basis.  

Some initiatives like the International Institute for Sustainable Development’s scorecards and G20 and APEC peer reviews have provided one-time evaluations on progress. In addition, the new Assessing Sovereign Climate-related Risks and Opportunities (ASCOR) tool systematically evaluates the existence, timeline and transparency of such commitments. This tool assesses countries annually on two key questions: has the country committed to a deadline by which to phase out fossil fuel subsidies; and does the country publish an inventory of explicit fossil fuel subsidies? ASCOR also enables consistent comparisons by identifying evidence for fossil fuel subsidies across a range of relevant databases (e.g. the IMF, OECD, IEA, UNSDG).  

Using the ASCOR methodology, we provide a snapshot of G20 countries’ progress in achieving their phaseout pledges (see table below). We analyse the clarity, accountability, level of ambition and transparency of these pledges. Our analysis reveals four key findings:  

1. The G20’s joint commitment is largely not being implemented at the domestic level, with phaseout commitments rarely restated in domestic policies. Brazil sets a target in its Agenda for a More Sustainable Brazil to rationalise inefficient fossil fuel subsidies and phase out harmful subsidies, but lacks a deadline. Only Canada, Germany and Italy commit to a deadline in a domestic policy document.  

2. Canada is the only country that published guidelines to identify ‘inefficient’ fossil fuel subsidies. This is a necessary step for countries to identify which subsidies to eliminate. Although they do not define ‘inefficient’, Germany and Italy use relevant categorisations such as ‘environmentally harmful’ to classify the types of subsidies they aim to phase out. Both countries are also exploring frameworks or methodologies to apply clearer definitions for these categories. 

3. Disclosing transparent inventories of fossil fuel subsidies is rare. Only Italy, Germany and France report their subsidies regularly, within their National Energy and Climate Plans (NECPs), as required by the EU. Germany and Italy also have internal reporting mechanisms which are updated regularly.  

4. Disclosing fossil fuel subsidies in annual budget reports or ministry-specific documents is an emerging practice. However, many of these do not encompass all existing subsidies or they include insufficient detail (e.g. on fuel type, amount or period covered). For example, although Argentina’s disclosure on energy subsidies includes fossil fuels, the fuels are not clearly and comprehensively identified. Issues regarding the scope of reporting may stem from a lack of inter-ministerial collaboration or clarity, leading to the absence of a centralised public inventory approach.  

G20 countries’ progress in achieving their phaseout pledges, drawing on ASCOR 

Notes: ^aThe disclosed inventory is not specific to fossil fuel subsidies but is more broadly categorised as energy subsidies. ^bThere is no dedicated framework to define the fossil fuel subsidies to be phased out, but there are initial efforts to define or establish a definition. ^cG7 countries have set a deadline for 2025 in their joint statements, but not all members have restated this commitment in a domestic policy. The following countries were found to have none of the characteristics evaluated here: Australia, China, India, Indonesia, Japan,^c Mexico, Republic of Korea, Russian Federation, Saudi Arabia, South Africa, Türkiye, United Kingdom,^c United States.^c 

Recommendations for comprehensive action to accelerate the phaseout 

Limited action at the domestic level highlights the urgent need to accelerate progress in phasing out fossil fuel subsidies. We assess that countries must do three things: 

1. Define ‘inefficient’ fossil fuel subsidies. International cooperation can play a key role in removing legal barriers stemming from international treaties and addressing competitiveness concerns. However, countries must move beyond vague pledges and set an agreed definition. They can develop internal guidance, as Canada has, to identify relevant subsidies. An agreed framework should enable countries to set phaseout timelines tailored to their national circumstances. During its G7 Presidency in 2025, Canada should ensure a common definition is on the agenda and share its experience with its self-review framework.  

2. Report transparently, consistently and regularly. Countries should regularly report the total amount spent on fossil fuel subsidies following guidance such as that of the UN SDGs. This reporting needs to be complemented by transparent and consistent fossil fuel subsidy inventories. EU member states sometimes disclose inventories in their NECPs. Reporting tools under the UNFCCC such as the Biennial Transparency Reports (BTRs) provide an opportunity to enhance transparency around fossil fuel subsidies. Domestic reporting mechanisms, such as subsidy catalogues (e.g. as in Italy), can enhance transparency by detailing the amount and rationale for subsidies as well as specific phaseout dates. National inventories to be announced during COP29 may also serve as best emerging practice depending on their coverage and consistency.  

3. Provide targeted support in line with just transition principles. Although fossil fuel subsidies are economically inefficient, phaseouts can pose socioeconomic concerns too. To alleviate potential disproportionate impacts, countries can integrate just transition principles into fossil fuel subsidy phaseouts by establishing compensation measures for vulnerable communities and sectors. G20 countries can learn from Indonesia, which compensated low-income households through cash transfers or from Morocco, which allocated public finance to renewable energy sources, creating green jobs and enhancing national energy security.  

Developments at COP28 and in the G7 statement (2024) signal that countries are finally aligning on an approach to define fossil fuel subsidies and track progress consistently. G20 countries have a major responsibility in closing the global emissions gap, producing, as they do, 77% of these emissions. At COP29 and the upcoming G20 summit, countries should announce clear phaseout timelines, which may be differentiated by country, and build on the G7’s promise to develop a common and transparent phaseout framework. These need to be applied with no further delay and used as a replicable model for other countries.  

The authors would like to thank Anika Heckwolf, Carmen Nuzzo and Sini Matikainen for their helpful reviews of this commentary.  

Authors’ note about the research 

This commentary draws on research conducted within the Transition Pathway Initiative Centre (TPI Centre), based at the Grantham Research Institute on Climate Change and the Environment. The TPI Centre is the academic partner of the Assessing Sovereign Climate-Related Opportunities and Risks (ASCOR) project referred to within the commentary and publishes annual assessments of countries on the ASCOR tool. Note that middle- and low-income countries are not assessed for all the fossil fuel indicators, but additional research was conducted on these countries for the purpose of this commentary.