Fossil Fuel Subsidy Reform (FFSR)

MAIN TYPES of Fossil Fuel Subsidy Measures: Production Subsidies

Note by the Secretariat[1]

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This background note provides an overview of literature and analysis on the design, characteristics and effects of fossil fuel production subsidies. It thus aims to inform discussions under pillar 3 of the Fossil Fuel Subsidy Reform (FFSR) Initiative's work programme.

1  Scope and Scale of Production Subsidies for Fossil Fuels

1.1.  Fossil fuels generally include oil, natural gas, or solid fuels (peat, lignite, sub-bituminous or brown coal, bituminous or black coal or anthracite).[2] The Organisation for Economic Cooperation and Development (OECD), the United Nations Environment Programme (UNEP), the International Institute for Sustainable Development (IISD), and some other expert groups and non-governmental organisations identify and quantify subsidies to fossil fuel production using the definition in Article 1.1 of the WTO's Agreement on Subsidies and Countervailing Measures. In particular, according to the OECD[3] and Sustainable Development Goals Indicator 12.c.1[4] approach, fossil fuel production subsidies are mostly understood as those provided to the producers of fossil fuels along all stages of fossil fuel production, including exploration, extraction, transportation and storage, refining and processing, as well as decommissioning of installations.[5] Each stage of fossil fuel production may involve a wide range of government support provided through direct spending, tax breaks and other mechanisms.[6] Subsidies to generation of electricity based on fossil fuels and the consumption of oil, gas and coal also support their production both directly and indirectly.[7]