OECD welcomes ground-breaking peer reviews by China and US of their fossil fuel subsidies

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6/9/2016: The OECD has welcomed the release by China and the US of peer reviews of their fossil fuel subsidies.

The ground-breaking voluntary peer review mechanism, first applied to the world’s two largest economies, aims to pave the way for widespread reform across G20 countries of inefficient public support to fossil fuels – a major contributor to air pollution and climate change.

Publication of the reports follows the announcement by China and the US on Saturday that they will formally ratify the Paris Climate Change Agreement.

The OECD commended China and the US for the high degree of transparency and openness throughout the peer review process. The OECD provided key analysis in the run up to the G20 commitment in 2009 to phase out the inefficient subsidies and has been measuring public support to fossil fuels since. As Chair of the peer review teams, the OECD also contributed impartial data and analysis for both peer reviews.

Speaking on the sidelines of the G20 Leaders’ Summit in Hangzhou, China this weekend, OECD Secretary-General Angel Gurría said: “China and the US are to be applauded. These first G20 peer reviews are critically important. Reforming policies that support the production or consumption of fossil fuels is a vital step in the global effort to substantially reduce emissions of carbon dioxide and other greenhouse gases.”

Recent studies show that phasing out fossil fuel consumption subsidies, which are estimated at around USD 500-600 billion a year, could alone reduce global annual greenhouse gas emissions by 6-13% by 2050.

The Chinese report proposes 9 inefficient fossil fuel support policies for reform. Most of these policies are exemptions from excise or land-use taxes that benefit fossil fuels. Three of them relate to power or heat generation, and the largest – worth USD 15 billion a year in total – concerns a collection of subsidies for fossil fuels used in transport. These efforts are set within the context of China’s larger economic reforms, which stress the quality of economic growth, green growth and sustainability.

The US report proposes 16 inefficient fossil fuel support policies for reform. Most of these policies are special features of the tax code relating to upstream activities, such as the exploration, development, and extraction of oil or natural gas. Total funds disbursed or tax-revenue foregone under each measure vary substantially, with several costing USD 1 billion or more annually. These proposed reforms by the United States can be seen within a broader context, including recent initiatives to address emissions of CO2 and other greenhouse gases (GHG).

The OECD will also chair the forthcoming fossil fuel subsidy peer reviews of Germany and Mexico.

Further information on OECD work on fossil fuel subsidies is available at: www.oecd.org/site/tadffss/.

oecd-aligning-policies
Aligning Policies for a Low Carbon Economy, a report by the OECD, International Energy Agency, Nuclear Energy Agency, and International Transport Forum is available here.

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