Tackling fossil fuel subsidies through International Trade Agreements

Fossil fuel subsidies undercut the international community’s Sustainable Development Goals (SDGs) and climate change objectives in many ways. One example of this is by diverting investment from development objectives such as health care, education and access to renewable energy, and by locking in carbon-intensive energy systems for decades into the future. Estimated at several hundred billion dollars a year, such subsidies also affect fossil fuel prices, and can therefore have distorting impacts on trade and investment. Given its central role in disciplining trade-distorting subsidies across sectors, the World Trade Organization (WTO) is an obvious candidate for advancing fossil fuel subsidy reform (FFSR) internationally. However, their engagement on this topic has been limited. While a growing body of disputes on renewable energy support measures have been brought before the WTO, Members have yet to initiate legal proceedings against subsidies for oil, coal or gas. This working paper highlights the range of explanations for this puzzling discrepancy.