Energy subsidies and tax revenues, investments by state-owned enterprises (SOEs) as well as credit support through state-owned banks and international finance institutions represent flows of public money that can either undermine or encourage sustainable and equitable development and decarbonization.
Group of 20 (G20) governments have committed to ending government support to fossil fuels through a number of reform pledges, starting with the G20’s 2009 commitment to phase out “inefficient fossil fuel subsidies that encourage wasteful consumption”. In addition, under the Paris Agreement, all governments have further committed to “making finance flows consistent with a pathway toward low greenhouse gas emissions and climate-resilient development”—a pledge that applies to both private and public finance in all their forms. Sustainable Development Goals (SDGs), in particular target 12.C and indicator 12.C.1 under SDG 12 on Sustainable Consumption and Production, also include the reform of subsidies to fossil consumption and production.
Despite these commitments, G20 governments continue subsidies, credit support and SOE investments to support both the production and consumption of oil, gas, coal and fossil-fuel-based electricity. Political inertia, vested interests of the industry and a lack of transparency and accountability all lead to the continued use of taxpayers’ money to lock in unsustainable development pathways.
Yet, change is possible. Some G20 governments have made progress in shifting at least some support away from fossil fuels and increasing taxation of fossil fuels. This working paper has brought together examples illustrating how reforms can be enabled and implemented to align the flows of public money with the Paris Agreement and SDGs.