Fossil Fuel Subsidy Reform as Western Trade and Climate Initiative

Abstract

Fossil fuel subsidy reform (FFSR) is a relatively new direction being introduced into international negotiations by the Western countries under climate agenda. The issue of FFSR was included into the decision of the COP26 in 2021, and since as long ago as 2009 it has been included into the statements of G20 and G7. Dynamics of FFSR introduction into the documents of also the WTO, UNEP, OECD and IEA as like as gradual strictening of wording is considered. The Western countries aim at one-sided change of existing international rules, alike as ways of conducting economic activity, obtainment of economic and technological advantages for themselves and increase of the developing countries’ costs. Development of the FFSR concept is targeted at deprivation of fossil fuels producing and using countries of their essential advantages and makes an attempt to impose a negative color on objective properties of pricing and fiscal policy, as the latter is fulfilled by sovereign governments of developing states based on their economic goals. The FFSR can become a non-tariff tool of influence on competition in the international trade and production in the interests of the developed states. The valuations of FFS by international organizations vary from 1.1 to 7.1 USD Trillions for 2022 (that is as much as from 1 to 7% of the world’s GDP); these estimates can be used for making pressure on developing states. The term FFSR is being used by its proponents for spheres that are not traditionally referred to as subsidies, and is in the essence directed at both reduction and cost increase of fossil fuels usage. Three following approaches on what is a fossil fuel subsidy are spread. Most common is the one considering a gap between local prices in fossil fuels producing countries and world prices. The second deals with negative externalities arising from fossil fuels usage. Under the third one traditional subsidies are examined. According to the approach applied by the IMF and being considered by the IEA, fossil fuels usage leads to negative externalities, such as climate change, air pollution and other impact. These organisations reckon that such externalities can be quantified mathematically and economically through carbon price – thus by developing the FFSR concept they shape the basis and argumentation for adoption of international carbon pricing. That means radical changing of normal conditions of economic activity in the countries of the world.