国际可持续发展研究所-根据《巴黎协定》将公共资金流从化石燃料转向清洁能源（英）

March2023

©2023InternationalInstituteforSustainableDevelopment|IISD.org

ShiftingPublicFinancial

FlowsfromFossilFuelsto

CleanEnergyunderthe

ParisAgreement

InternationalInstituteforSustainable

DevelopmentEnergyProgramSubmission

totheUNFCCCFirstGlobalStocktake

SubmissiontotheUNFCCCaheadofthethirdTechnical

DialogueoftheGlobalStocktake

SubmittedbyobserverorganizationIISD,withsupportfrompartners

IISD.org

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergy

undertheParisAgreement:InternationalInstituteforSustainable

DevelopmentEnergyProgramSubmissiontotheUNFCCCFirst

GlobalStocktake

March2023

WrittenbyIndiraUrazova,SusanneFlinner,ChristopherBeaton,and

IvettaGerasimchuk

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

Acknowledgements

TheauthorswouldliketothankLukasWelkerfromIISDforhissupportinprojectmanagement,andthefollowingindividualsandinstitutionsforthevaluablecommentsandrecommendationsthattheyprovidedaspeerreviewers:

•LiviGerbase,InstituteofSocioeconomicStudies

•MarianaGutierrezGrados,IniciativaClimáticadeMéxico

•LouiseKessler,InstituteforClimateEconomics

•JuliaLevin,EnvironmentalDefenceCanada

•CamilaAgustinaMercureandGuillerminaFrench,FundaciónAmbienteyRecursosNaturales

•ElisaSainzdeMurietaandMikelGonzález-Eguino,BC3BasqueCentreforClimateChange

•ChidoMuzondo,InternationalInstituteforSustainableDevelopment

•GabrieleNanni,Legambiente

•RasmusSihvonenandOrasTynkkynen,TheFinnishInnovationFundSitra

•CharleneWatson,OverseasDevelopmentInstitute

WewouldalsoliketothankthegovernmentsofDenmark,Norway,andSwedenfortheirgeneroussupportofthispublication.Theopinionsexpressedandtheargumentsemployedinthisupdatedonotnecessarilyreflectthoseofpeerreviewersandfunders,norshouldtheybeattributedtothem.

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

ExecutiveSummary

WhyTrackPublicMoneySupporttoFossilandCleanEnergyUnderArticle2.1(c)?

UnderArticle2.1(c)oftheParisAgreement,partiesagreedtomakefinanceflowsconsistentwitheffortstomitigateclimatechange.Further,atthe26thand27thConferenceoftheParties,inGlasgowandSharmElSheikh,partiescommittedtophaseoutinefficientfossilfuelsubsidieswhileprovidingtargetedsupporttothepoorestandmostvulnerable.ThissubmissiontothefirstformalUnitedNationsFrameworkConventiononClimateChangeGlobalStocktakeprovidesevidenceoftheextenttowhichpartieshavemadeprogressonaligningpublicfinancialflows—suchassubsidiesandotherformsofgovernmentsupport—withtheneedtoreduceemissionswithinapathwayforasafeclimate.

Publicfinancialflowsareparticularlyimportant.Theymustbethefirsttomovebecausegovernmentscontrolthemdirectly,andtheycaninfluencemuchlargerprivatefinancialflows.Theyalsoriskbeingthelasttomoveifpublicinstitutionsbecomethe“lendersoflastresort”tofossilinterests,leavinggovernmentsexposedtoassetstrandingandlessabletomeettheirsocialandeconomicobligations.Thesubmissionisspecificallyfocusedonprogressinshiftingpublicfinancialflowsawayfromfossilenergyandtowardcleanenergy:thatistosay,thewaysinwhichpubliclycontrolledmoneyhasbeenspentonenergy—includingsubsidies,investmentsbystate-ownedenterprises(SOEs),andlendingfrompublicfinancialinstitutions—andtheextenttowhichthisisinlinewithclimatetargets.

Shiftingpublicsupportfromfossilfuelstocleanenergyisonewaytobridgethegapinfinancingforcleanenergy.Itsendsaclearsignaltomarketsabouttherelativerisksofdifferenttypesofinvestmentsandcanbecrucialduringtheearlyyearsoftechnologydeployment,particularlyinemerginganddevelopingmarkets.Intheshortterm,ithelpsreducerisksforprivateinvestors,encouraginginvestments.Inthemediumterm,itpromoteslearningbydoing,helpingtopermanentlyreduceriskperceptionsandleveragelargervolumesofongoingprivatefinancing.

TakingStock:Howhasfinancialsupportforfossilfuelschanged?

AccordingtotheFossilFuelSubsidyTracker,fossilenergysubsidiesreachedUSD732billionin2021,35%higherthanin2015,theyearoftheParisAgreement(USD543billion).Onaverage,governmentshaveallocatedatleastUSD643billionperyearforfossilfuelsupportfrom2010to2021.Petroleumwasthemostheavilysubsidizedfuel:outofthe2021total,subsidiestopetroleumproductswerethelargest,atUSD326billion,followedbysupportforend-useelectricity(USD211billion).

IntheweekbeforethisStocktakesubmissionwascompleted,theInternationalEnergyAgency(IEA)publishedthefirstpreliminaryestimateoffossilfuelsubsidiesfor2022.ThisfoundthatsubsidiesforfossilfuelconsumptionexceededUSD1trillionforthefirsttime,

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

reachingatotalvalueofUSD1.1trillion.TheIEAdatasetdoesnotcoverallcountries,anddoesnotincludeproductionsubsidies,sothefinalvalueoffossilfuelsubsidiesfor2022willbestillhigher,asfurtherdatabecomeavailable.

Incontrast,theInternationalRenewableEnergyAgencyestimatesthatsubsidiesforrenewablesconstitutedclosetoUSD167billionin2017(includingsupportforbiofuels),withsubsidiesforrenewablepowergenerationofaroundUSD128billion.TheInternationalEnergyAgency’sestimateofrenewablepowersubsidiesisslightlyhigher,atUSD146billion.Theauthorspreparingthissubmissionwereunabletoidentifymorerecentestimatesofsupportlevelsforcleanenergy.

Commitmentsonshiftingfinancialflowshavenotfaredwellduringrecentcrises.DuringtheCOVID-19crisis,manygovernmentsadopted“shovel-ready”fossilprojectsthatwerealreadyinthepipelineasaquickfixagainstfallingGDPgrowth.AccordingtotheEnergyPolicyTracker,ofthetotalquantifiednewpublicmoneycommitmentsby38trackedmajoreconomiesandeightmultilateraldevelopmentbanksin2020and2021,41%(USD515billion)wereforfossil-intensivesectors.

Overtime,however,therewasagradual“greening”ofrecoverymeasures—ofthetotalquantifiednewpublicmoneycommitmentsin2020and2021,38%(USD488billion)wereforcleanenergy.Somecountriesalsoannouncedfossilsupportwith“greenstrings”attached—thatis,somekindofconditionalitylinkingthesupporttobetterperformanceonclimate—butthismadeuponlyasmallshareofcommitments.Goodpre-existingplansforcleanenergyseemedtoplayanimportantroleininfluencingpolicyduringthecrisis.Byandlarge,COVID-19responsepackagesreflectedcountries’previousclimateeffortsandpatternsoffossilfuelsupport.

Weidentifiedthreemajorknowledgegapsonpublicfinancialflowsforenergy.ThefirstisinvestmentsbySOEs,whichinmanycountriesremainunquantified.Accordingtooneassessment,fossilfuelinvestmentsofSOEsaccruedtoUSD257billionperyearonaveragebetween2017and2019.Thesecondispublicfinanceflowingtoenergy.SomestrongdataonthisexistinthePublicFinanceforEnergyDatabase,buttheylikelyunderestimate

thefulllevelsofsupportduetolimitationsonthedegreeoftransparencyonproject-levelfinancedeliveredthroughfinancialintermediaries.Third,therearefewsystematicassessmentsofsubsidiesgiventorenewableenergybycountry.

WhyAreFossilFuelSubsidiesaBarriertoParis

Implementation?

FossilfuelsubsidieshinderimplementationoftheParisAgreementbecausetheycreateincentivestoproduceandconsumemorefossilfuels,increasinggreenhousegasemissions,andtheyskewthelevelplayingfieldforinvestinginanddeployingclean

energytechnologies.Itissometimesclaimedthattheyareneededtosupportlow-incomehouseholds—inreality,however,researchshowsthatthebiggestbenefitsoftenaccruetothewealthiestgroups.Thesesubsidiesarealsooftenextremelycostly,consumingpublicresourcesthatcouldinsteadbeusedtosupportthepoormoreefficiently(suchashealthandeducationservices)ortoaddressclimatechangemitigationandadaptation.

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Shiftingsupportfromfossilfuelstocleanenergycanacceleratetransition.Kuehletal.estimatedthepotentialimpactsoffossilfuelsubsidyreformacross32countries.Onaverage,theyfoundthatsubsidyreformalonewouldreducegreenhousegasemissionsby6%by2030,savingoverUSD3trillionfrom2019to2030.Addingamodestfossilenergytaxof10%andrecyclingashareofrevenuesintosustainableenergywouldincreaseemissionsreductionsto11.8%by2030.

WhyIsItaChallengeforCountriestoConductFossilFuelSubsidyReform?

Shiftingpublicsupportawayfromfossilfuelscanbeasourceofpositivesocialandenvironmentalchanges,butinmanycases,itneedstobecarefullyplanned,oritcanhavenegativesocioeconomicimpacts.Onthesideofconsumersubsidies,typically,themainchallengesarealackofbettersocialprotectioncapacity,alackofsocialconsensusabouttheproblematicnatureofsubsidizingfossilenergy,andalackofpublictrustinthereformprocessduetoweakgovernance.Onthesideofproducersubsidies,typically,themainchallengestosubsidyreformarethestrongpoliticalinfluenceofvestedinterests,highlynon-transparentreportingonsupportmeasures,andthelackofstandardinternalprotocolforgovernmentstoassessthefullcostsandbenefitsofsupportmeasures.

Internationally,theabsenceofabindingframeworkonsubsidyreformlowerstheincentiveforimplementationforbothconsumerandproducersubsidies.Loopholesindefinitionscreateopportunitiesforgovernmentstocontinueprovidingsubsidiesandpublicfinanceforfossilfuels,andotheraccountabilitymechanisms—suchasatimeframeforimplementationinlinewithclimatescience,andtechnicalandothercapacity-buildingsupport—aremissing.Governmentsarenottheonlyactorsinneedofassistance.Non-stateactorsalsoneedcapacityandatechnicalevidencebasistoestablishclearpositionsonhowtoshiftfinancialflowsinwaysthataresociallyresponsible.

HowCanCountriesOvercomeBarriersandChallenges?

Researchonthechallengesoffossilfuelsubsidyreformsuggestsanumberofstepsthatcanhelpovercomechallengestoshiftingpublicfinancialflowsforenergy.Thisincludes:

•Improvingthestateoftransparency.GovernmentsshouldattheveryleastimmediatelyadheretoreportingrequirementsonfossilfuelsubsidiesunderSustainableDevelopmentGoalIndicator12.c.1.Goingforward,government,theprivatesector,andcivilsocietyorganizationsshouldprioritizefillinginknowledgegapsinallaspectsofpublicfinancialsupportforenergy,includinginvestmentsbySOEs,lendingbypublicfinancialinstitutions,andthedevelopmentofbettercomparativedataoncleanenergy.

•Improvingtheaccountabilityofglobalcommitmentsonshiftingpublicsupportfromfossilfuelstocleanenergy.Thisshouldincludesettingcleartimelines,morenarrowlydefiningexclusionaryclauseslike“inefficient,”andconsideringtheestablishmentoffinancialandtechnicalsupportforstateandnon-state

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actorsinimplementation.Governmentscanmoreexplicitlyexpandcommitmentsonfossilfuelsubsidiestoallpublicfinancialflows,andseektohavecommitmentsrecognizedinotherfora,aswellasintegratingclearplansonfinancialflowsintotheirnationallydeterminedcontributions(NDCs).

•Atanationallevel,goodplanningisessential.ThishasbeenparticularlyclearfromexperiencesduringtheCOVID-19pandemic,wherethestateofplanningaroundenergytransitionappearstohavebeeninstrumentalindeterminingthepatternsofnewpublicmoneycommitments,asgovernmentssteppedintostimulateeconomies.Planningisalsoessentialaroundreformofsupportmeasures.Experiencesfromfossilfuelsubsidyreformsuggestatleastthreecommonsteps:

°Gettingthepricesright:Thiscanincludeusingpricecapsandfloorsorother

automaticpricingfeaturestoimplementanewregimewithoutbacksliding.Forfuelslinkedtoenergyaccess,itmayinvolvetargetingsubsidiestothosemostinneed.Itwillalsoincludeincreasingtaxationtobetterreflectfossilenergyexternalities.

°Managingimpacts:Thisincludesmappingoutpotentialsocialandeconomic

impactsandreallocatingrevenuesintosocialprotectionandassistanceforbusinessestoensureasociallyaspirationaloutcomefromchange.Ajusttransitionapproachprioritizesdecentwork,socialinclusion,andpovertyeradication.

°Buildingsupport:Thisincludesmeaningfulstakeholderconsultations

onhowtoadjustpricesandmanageimpacts,androbustevidence-basedcommunicationsbefore,during,andafterimplementation.

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TableofContents

Introduction 1

PartI:TheCurrentStateofPublicFinancialFlowsforEnergy 3

WhyTrackPublicMoneySupporttoFossilandCleanEnergyUnderArticle2.1(c)? 3

TakingStock:Financialsupportforfossilfuelssince2010 5

PartII:ChallengestoEffectiveParisAgreementImplementation 14

WhyAreFossilFuelSubsidiesaBarriertoParisImplementation? 14

WhyIsItaChallengeforCountriestoConductFossilFuelSubsidyReform? 18

OvercomingBarriersandChallenges 21

ConclusionandRecommendations 25

References 26

ListofFigures

Figure1.GlobalfossilfuelsubsidyestimatesandBrentcrudeprices(2010–2022) 7

Figure2.Cumulativeneworamendedpublicmoneycommitmentstofossil,clean,andother

energyin38trackedmajoreconomies,2020–2021 10

Figure3.Shareofneworamendedpublicmoneycommitmentstocleanenergy(%)in38

majoreconomiesin2020–21,bysector 11

Figure4.CoreelementsofFFSRplanning 21

ListofBoxes

Box1.TheFossilFuelSubsidyTracker 8

Box2.TheEnergyPolicyTracker 13

Box3.Successstory:reformofgasolineanddieselsubsidiesinIndonesia(2014–2015) 16

Box4.Successstory:FFSRandsupportforrenewablesinIndia 17

Box5.Whatisfossilfuelsubsidyreform? 20

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

Listof

Abbreviations

ACC

advancedchemistrycell

APEC

Asia-PacificEconomicCooperation

BECCS

bioenergyandcarboncapturestorage

CCS

carboncaptureandstorage

COP

conferenceoftheparties

DFI

developmentfinanceinstitutions

ECA

exportcreditagency

EPT

EnergyPolicyTracker

EV

electricvehicle

FFSR

fossilfuelsubsidyreform

FFST

FossilFuelSubsidyTracker

GHG

greenhousegas

GSI

GlobalSubsidyInitiative

GST

GlobalStocktake

GW

gigawatt

GWh

gigawatt-hours

IEA

InternationalEnergyAgency

IISD

InternationalInstituteforSustainableDevelopment

IMF

InternationalMonetaryFund

IPCC

IntergovernmentalPanelonClimateChange

IRENA

InternationalRenewableEnergyAgency

LPG

liquefiedpetroleumgas

MDB

multilateraldevelopmentbanks

OCI

OilChangeInternational

OECD

OrganisationforEconomicCooperationandDevelopment

PFED

PublicFinanceforEnergyDatabase

PV

photovoltaic

SBI

SubsidiaryBodyforImplementation

SBSTA

SubsidiaryBodyforScientificandTechnologicalAdvice

SDG

SustainableDevelopmentGoal

SOE

state-ownedenterprise

UNFCCC

UnitedNationsFrameworkConventiononClimateChange

WTO

WorldTradeOrganization

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

Introduction

IntheParisAgreement(UnitedNationsFrameworkConventiononClimateChange[UNFCCC],2015a,p.3),underArticle2.1(c),partiesagreedto“Makingfinanceflowsconsistentwithapathwaytowardslowgreenhousegasemissionsandclimate-resilientdevelopment.”Thispledgeappliestobothprivateandpublicfinancialflows.Further,atthe26thConferenceoftheParties(COP26)(UNFCCC,2021)andCOP27(UNFCCC,2022,p.3),partiescommittedtothe“phase-outofinefficientfossilfuelsubsidies,whileprovidingtargetedsupporttothepoorestandmostvulnerableinlinewithnationalcircumstancesandrecognizingtheneedforsupporttowardsajusttransition.”

ThissubmissiontothefirstformalUNFCCCGlobalStocktake(GST)providesevidenceoftheextenttowhichpartieshavemadeprogressonaligningpublicfinancialflows,suchassubsidiesandotherformsofgovernmentsupport,withtheneedtoreduceemissionswithinapathwayforasafeclimate.Thesubmissionisspecificallyfocusedonprogressinshifting

publicfinancialflowsawayfromfossilenergy

andtowardscleanenergy:thatistosay,the

waysinwhichpubliclycontrolledmoneyhasThesubmissionisspecifically

beenspentonenergy—includingsubsidies,focusedonprogressinshiftingpublic

investmentsbystate-ownedenterprisesfinancialflowsawayfromfossil

(SOEs)andlendingfrompublicfinancialenergyandtowardscleanenergy

institutions—andtheextenttowhichthisis

inlinewithtargetsonGHGemissions.

Thesubmissionrespondstoquestionssetoutintherevisednon-paperbythechairsoftheSubsidiaryBodyforScientificandTechnologicalAdvice(SBSTA)andtheSubsidiaryBodyforImplementation(SBI)—specificallyquestion19,andhowitrelatestoquestion15(ChairsoftheSBSTA&SBI,2021).

Question19:

Whatisthestateofcurrentglobalclimatefinanceflows,trendsanddatagaps?WhatinformationisavailableoneffortstomakethefinancialflowsconsistentwiththepathwaystowardslowGHGemissionsandclimate-resilientdevelopmentandwhataretheknowledgegaps(Article2.1(c),para36(d))?

Question15:

Whatarethebarriersandchallenges,includingfinance,technologydevelopmentandtransferandcapacity-buildinggaps,facedbydevelopingcountries(para36(f))?

Thefirstpartofthesubmissionaddressesquestion19basedonthreemajorinternationaldatasourcesonpublicsupportforfossilfuelsandrenewables:TheFossilFuelSubsidyTracker(FFST),thePublicFinanceforEnergyDatabase(PFED),andtheEnergyPolicyTracker(EPT).Itfirstfocusesonthesizeofpublicfinancialflowstofossilfuel-basedenergyfrom2010to2019.IttheninvestigatesthesupportthatwasintroducedforfossilandcleanenergyinresponsetotheCOVID-19pandemicin2020-2021.Itconcludesthatgovernmentsand

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

PartI:TheCurrentStateofPublic

FinancialFlowsforEnergy

WhyTrackPublicMoneySupporttoFossilandCleanEnergyUnderArticle2.1(c)?

Article2.1(c)oftheParisAgreementstatesthatallfinancialflowsshouldbealignedwithclimatetargets.Specifically,itbindsitspartiesto“makingfinanceflowsconsistentwithapathwaytowardslowGHGemissionsandclimate-resilientdevelopment”(UNFCCC,2015a,p.3).

Publicfinancialflowsareparticularlyimportant.Thisisbecause(i)Theymustbethefirsttomove,becausetheyareunderthedirectinfluenceofgovernments(O’Maniqueetal.,2022),andtheycanbeusedtoleverageshiftsinlargerprivatefinancialflows(Lindenberg,2014;Venugopaletal.,2012;);and(ii)Theyriskbeingthelasttomoveifpublicinstitutionsbecomethe“lendersoflastresort”tofossilfuelinterests,whichcouldinturncompromisegovernments’abilityto

deliveronbroadersocialandeconomicobligations,iftheydisproportionatelybearfinancialrisksoftransition,suchasassetstranding(O’Maniqueetal.,2022).

Anypublicfinancialsupportfornewfossilfuelprojectsisnotalignedwithclimatetargets.Thereisalongstandingconsensus

Anypublicfinancialsupportfornewfossilfuelprojectsisnotalignedwithclimatetargets.

thatthereisnoroomfornewcoal,andacoalphasedownisrequiredtomitigateclimatechange,asconcludedbynumerousexpertstudies(InternationalEnergyAgency[IEA],2021;Rochaetal.,2016;YanguasParraetal.,2019).BoththeGlasgowPactandtheSharmel-SheikhImplementationPlannowcommittoa“phasedownofunabatedcoal”(UNFCCC,2021,2022).Morerecently,asimilarconsensushasemergedaroundoilandgas.AnInternationalInstituteforSustainableDevelopment(IISD)synthesisofthelatestresearchonclimateandenergypathways1demonstratesthatanalysisbyallcredibleexpertinstitutions,includingtheIntergovernmentalPanelonClimateChange(IPCC)andIEA,concludesthattheexplorationandextractionofoilandgasfromnewfieldsisnotcompatiblewith1.5°Cpathwaysandthatoilandgasconsumptionandproductionmustdecreaseatleast65%by2050(Picciarielloetal.,2022).AtUNFCCCCOP27(2022),Indiaproposedtoextendtootherfossilfuelstheagreementtophasedowncoal.Althoughthisproposalhasnotyetgainedsupportfromallparties,abroadcoalitionofmorethan80countriestookupthecall(Darbyetal.,2022).StoppingfinancialflowsfornewfossilfuelprojectsshouldbethefirstpriorityforthepartiestoimplementArticle2.1(c)oftheParisAgreement.

Publicfinancialsupportforcleanenergyoughttobeincreasing,giventhehugeinvestmentlevelsrequiredoverashorttimetoachieve1.5°Cpathways.AccordingtoIPCC,windand

1Exclusionofbioenergyandcarboncapturestorageandcarboncaptureandstoragepathwayswithmorethan3GtCO2/yearofeach.

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ShiftingPublicFinancialFlowsfromFossilFuelstoCleanEnergyundertheParisAgreement

solarcapacityadditionsneedtoreach350gigawatts(GW)and660GW,respectively,by2030tostayoncoursewith1.5°Cpathways(Byersetal.,2022).Toreachtheselevelsofdeployment,totalannualinvestmentsinbothwindandsolarshouldamounttoaboutUSD830billionby2030(Picciarielloetal.,2022).

Shiftingpublicsupportfromfossilstocleanenergyisonewaytobridgethegapinfinancingforcleanenergy.ForecastedannualinvestmentinnewoilandgasexplorationanddevelopmentaloneisestimatedatUSD530billionannuallyuntil2030(Picciarielloetal.,2022).Publicsupportsendsaclearsignaltomarketsabouttherelativerisksofdifferenttypesofinvestments,soshiftingpublicresourcescanhelpredirectprivateresources.Forcleanenergy,supportcanalsobecrucialduringtheearlyyearsoftechnologydeployment,particularlyinemerginganddevelopingmarkets:intheshortterm,ithelpsreducetheriskforprivateinvestors,encouragingprivateinvestments,andinthemediumterm,itpromoteslearningbydoing,helpingpermanentlyreduceriskperceptionsandtherebyleveragelargervolumesofongoingprivatefinancing(Lindenberg,2014;Venugopaletal.,2012).

ThisdynamichasbeenrecognizedbynumerousgovernmentsandpublicfinanceinstitutionsinmanyinitiativesbeyondArticle2.1(c):

•In2022,underTarget18oftheGlobalBiodiversityFramework(ConventiononBiologicalDiversity,2022),coun