Fossil Fuels

65
The Potential Role of the

International Trade Regime to
Phase Out Fossil Fuel Subsidies
Sarah Eason*
As an international community we are currently falling well short of

meeting the goals of the Paris Agreement and the gap is widening.
We must take dramatic and rapid action to scale up mitigation efforts,
including a massive global energy shift to clean energy. However,
countries are spending billions of dollars annually in fossil fuel
subsidies, incentivising the production and consumption of harmful
fossil fuels. There have been widespread calls for the careful phase-
out of these subsidies but it is clear that international coordination
and economic incentives are required for countries to take meaningful
action in this regard. The World Trade Organization (WTO) has the
potential to play a crucial role in the reform and eventual phase-
out of fossil fuel subsidies. It is suggested the WTO could increase
transparency and build political momentum in the first instance, with
a view to creating binding legal obligations in the longer term. The
WTO is well placed to advance fossil fuel subsidy reform given its
wide membership, binding nature, effective enforcement mechanisms
and the ability to generate rewards in exchange for concessions. Such
reform falls within the WTO’s mandate given fossil fuel subsidies have
a distorting impact on trade and investment as well as encouraging
significant environmental harm. Further, the WTO has a mandate to
ensure economic progress is achieved in accordance with the objective
of sustainable development. Regional and bilateral trade agreements
*LLB/BA, University of Otago (2008), LLM, University of Auckland (2019). This article was
submitted as a paper for the Climate Change Law (LAWENVIR723) course at the University of
Auckland in 2019, as part of an LLM degree. The author would like to acknowledge Professor
Christina Voigt for her inspirational teaching on the subject of Climate Change Law and her
guidance in writing the paper. Email: sarah.a.eason@gmail.com.
66 New Zealand Journal of Environmental Law
could play an important role alongside the WTO, with the potential
to entail more detailed commitments than the WTO dependent on
the parties involved. Whilst ambitious steps pose numerous political
and other challenges, the gravity and urgency of climate change as a
global crisis demands the international community to overcome such
challenges and cooperate to take rapid action.
1. INTRODUCTION
The objectives of the Paris Agreement are to limit global average temperature
increases to well below 2oC above pre-industrial levels, enhance the ability
to adapt to climate change, and to make financial flows consistent with a low
emissions pathway and climate resilient development.1 These are intended to be
achieved through universal participation by parties via increasingly ambitious
nationally determined contributions (NDCs). NDCs currently fall short of
meeting the goals of the Paris Agreement and the gap is widening, assisted by
the fact that we are burning fossil fuels at record levels.2 In 2018 an estimated
37.1 gigatonnes of fossil carbon dioxide (Gt CO 2) was emitted globally —
representing a 2.7 per cent increase from 2017 levels.3 The Emissions Gap
Report 2018 published by the United Nations Environment Programme (UNEP
Report) warns that if the gap is not closed by 2030, limiting the temperature rise
to below 2oC will be unlikely.4 All nations need to take dramatic and rapid action
to scale up mitigation efforts and key to these efforts will be a massive energy
shift away from fossil fuels to clean energy. Meanwhile, countries continue to
spend billions of dollars annually in fossil fuel subsidies — incentivising the
production and consumption of these harmful fossil fuels.
It is estimated that the careful phase-out of fossil fuel subsidies could
significantly reduce global emissions, but despite widespread political calls
to do so, little progress has been made towards removing them. It appears
that it will not be sufficient to rely on individual actions via the NDC process
alone to phase out fossil fuel subsidies, instead it will require greater economic
incentives and international coordination for countries to take meaningful
1 Paris Agreement 2015 (signed 22 April 2016, entered into force 4 November 2016) FCCC/
CP/2015/10/Add.1 [Paris Agreement], art 2.
2 Intergovernmental Panel on Climate Change Summary for Policymakers in Global
Warming of 1.5°C (IPCC, Geneva, 2018) at 20.
3 Corinne Le Quere and others “Global Carbon Budget 2018” (5 December 2018) 10(4)
Earth Syst Sci Data 2141.
4 United Nations Environment Programme The Emissions Gap Report 2018 (UNEP, Nairobi,
November 2018) [UNEP Report].
Potential of International Trade Regime to Phase Out Fossil Fuel Subsidies 67
action.5 The international trade regime has a crucial role to play in this regard,
particularly as fossil fuel subsidies have a distorting impact on trade and
investment as well as encouraging significant environmental harm. With its
wide membership, binding nature, effective enforcement mechanism, and
ability to generate rewards in exchange for concessions, the World Trade
Organization (WTO) and broader trade system (including bilateral and regional
trade agreements) could make a significant contribution to international efforts
to phase out fossil fuel subsidies.6 The WTO has a well-established record of
addressing subsidies. However, fossil fuel subsidies have been absent from the
WTO’s dispute resolution mechanism to date (whilst there have been a number
of cases concerning renewable energy subsidies in recent years) for various
legal and political reasons. This article will explore this issue in a discussion of
how the WTO and international trade agreements can contribute to phasing out
fossil fuel subsidies via existing or new frameworks to help meet the objectives
of the Paris Agreement.
By way of background, part 2 will overview the interface between the
international trade and climate regime under the Paris Agreement. Part 3 will
turn to fossil fuel subsidies to define what they are, the importance of removing
them and how they are currently regulated. Part 4 will discuss ways in which
the trade regime may help to phase out these subsidies — namely the WTO
could help increase transparency and build political momentum in the first
instance, with a view to creating binding legal obligations in the longer term.
Regional and bilateral trade agreements have the potential to play an important
role alongside the WTO and, depending on the parties, these agreements could
be more efficient and entail more detailed commitments than the WTO. As we
look to next steps in the pathway to reform, part 5 will briefly overview some
of the key drivers of a successful subsidy reform process.
2. THE RELATIONSHIP BETWEEN THE

INTERNATIONAL TRADING AND CLIMATE REGIMES
2.1 The Climate Regime under the Paris Agreement
The United Nations Framework Convention on Climate Change (UNFCCC)

sets the main objective of the climate regime as the “stabilization of greenhouse
5 Intergovernmental Panel on Climate Change Climate Change 2014: Synthesis Report —

Contribution of Working Groups I, II and III to the Fifth Assessment Report of the
Intergovernmental Panel on Climate Change (IPCC, Geneva, Switzerland, 2014) at 17.
6 Joel P Trachtman Fossil Fuel Subsidies Reduction and the World Trade Organization
(International Centre for Trade and Sustainable Development, Geneva, Issue Paper, October
2017).
gas concentrations in the atmosphere at a level that would prevent dangerous

anthropogenic interference with the climate system”.7 With 197 parties, the
UNFCCC benefits from near-universal participation giving it broad legitimacy
and, whilst it does not specify legal obligations to achieve this objective, it
provides the basis for further international agreements to specify action. The
Paris Agreement, adopted in December 2015 by 196 parties to the UNFCCC,
heralds a new era of international cooperation on climate change.8 The purposes
of the Paris Agreement are to (1) limit the global average temperature increase
to “well below” 2oC above pre-industrial levels and “to pursue efforts” to limit
the temperature increase to 1.5oC above pre-industrial levels;9 (2) enhance the
ability to adapt to climate change, to foster climate resilience and to establish
low greenhouse gas development;10 and (3) make financial flows consistent with
a low emissions pathway and climate resilient development.11
In a move towards a more bottom-up approach, the Paris Agreement
requires all parties to submit NDCs every five years which outline mitigation
pledges with increasing ambition over time.12 Thus the Agreement provides for
universal participation on the basis of common but differentiated responsibilities
and respective capabilities (CBDRRC).13 Current NDCs differ in ambition,
nature and scope and, absent strong centralised enforcement, will likely face
uneven implementation. Taken together their ambitions are far from adequate
to meet the goal of limiting temperature increases to well below 2oC.14 The
success of the Paris Agreement relies upon sufficiently ambitious NDCs being
committed to and effectively implemented by all parties. The support of other
international regimes, including the international trade regime, will be vital in
achieving this goal.
7 United Nations Framework Convention on Climate Change 1992 (adopted 9 May 1992,
entered into force 21 March 1994) 1771 UNTS 107 [UNFCCC], art 2.
8 Kasturi Das and others Making the International Trade System Work for Climate Change:
Assessing the Options (Climate Strategies, July 2018) at 6.
9 Paris Agreement, above n 1, art 2.1(a).
10 Article 2.1(b).
11 Article 2.1(c).
12 Article 4.
13 Article 2.2.
14 Das and others, above n 8.
2.2 The International Trade Regime
2.2.1 The WTO
The modern WTO was established in 1994 with a primary purpose to open
trade for the benefit of all.15 Comprising 164 member states, the WTO operates
a global system of trade rules as well as acting as a forum for negotiating trade
agreements, settling trade disputes between its members and supporting the
needs of developing countries.16 Central to the WTO are a series of agreements
regulating various aspects of international trade.
The WTO regime recognises environmental protection as a fundamental
principle. The preamble to the 1995 Marrakesh Agreement Establishing the
World Trade Organization (Marrakesh Agreement) acknowledges the need for
the “optimal use of the world’s resources in accordance with the objective of
sustainable development” in the pursuit of trade and economic goals.17 This
has come to play an important role in the interpretation of the core principles
of the General Agreement on Tariffs and Trade (GATT) and,18 in particular, the
exceptions to its trade disciplines.19 Article XX sets out two general exceptions
to GATT’s obligations based on environmental grounds: (1) nothing in the
GATT should be construed to prevent adoption or enforcement of measures
necessary to protect human, animal or plant life or health;20 or (2) relating
to the conservation of exhaustible natural resources, provided such measures
are effected in conjunction with restrictions on domestic production or
consumption.21 However, environmental measures must not be misused for
protectionist ends.22
The WTO’s Committee on Trade and Environment (CTE), open to the
entire WTO membership, provides a dedicated framework to address the
links between trade and environment at the institutional level.23 The CTE’s
mandate is broad and has contributed to identifying and understanding the
15 Marrakesh Agreement Establishing the World Trade Organization (concluded 15 April

1994) 1867 UNTS 154 [Marrakesh Agreement].
16 See World Trade Organization <www.WTO.org>.
17 Marrakesh Agreement, above n 15, preamble.
18 General Agreement on Tariffs and Trade 1994 (15 April 1994) LT/UR/A-1A/1/GATT/1
[GATT].
19 Daniel Bodansky, Jutta Brunnee and Lavanya Rajamani International Climate Change Law
(Oxford University Press, Oxford, 2017).
20 GATT, above n 18, art XX(b).
21 Article XX(g).
22 Article XX, chapeau.
23 Richard Baron and Justine Garrett Trade and Environment Interactions: Governance Issues
(Organisation for Economic Co-operation and Development, Background Paper for the
35th Round Table on Sustainable Development, 28–29 June 2017) at 13.
relationship between trade and the environment in order to promote sustainable

development.24 An important feature of the WTO is its strong dispute settlement
mechanism which plays a key role in providing legal clarity in cases of conflict
and has provided an important interface between trade and the environment in
recent times.25
2.2.2 Trade agreements
Alongside the WTO system is an increasing number of bilateral and regional

trade agreements (RTAs). Such agreements are perceived to help enhance
market access, promote foreign policy objectives and influence the policies
of trading partners.26 In recent times, states have sought to streamline the
increasing number of trade arrangements through “mega-regional agreements”
such as the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP).27 The potential impact of mega-regional agreements is
significant given the number of parties involved (including some of the world’s
major trading nations) and the expansive scope of the agreements (incorporating
market access and regulatory coherence).28 As a result, the success or failure
of these agreements may influence multilateral rule development. However,
success is not guaranteed and the various mega-regional agreements to date
have come under significant scrutiny, triggered partly by civil society demands
for transparency and partly by political opposition.29
Environmental provisions have become increasingly prevalent in RTAs.
These provisions take different forms, but depending on the mandate and budget
allocations by the parties involved, such provisions can form the basis for
subsequent technical cooperation, information exchange and capacity building,
and could even go beyond the commitments under the UNFCCC.30 The trend
of including environmental provisions is continuing in the negotiation of mega-
24 See WTO <https://www.wto.org/english/tratop_e/envir_e/wrk_committee_e.htm>.

25 Susanne Droege and others “The Trade System and Climate Action: Ways Forward under
the Paris Agreement” (2017) 13 SC J Int’l L & Bus at 205–206.
26 At 206.
27 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is a free
trade agreement between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia,
Mexico, Peru, New Zealand, Singapore and Vietnam. The deal was signed on 8 March
2018 and entered into force on 30 December 2018 for Australia, Canada, Japan, Mexico,
New Zealand and Singapore. It incorporates, by reference, the provisions of the Trans-
Pacific Partnership (TPP) (signed but not in force) with the exception of a limited set
of provisions to be suspended <https://www.mfat.govt.nz/en/trade/free-trade-agreements/
free-trade-agreements-in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-
pacific-partnership-text/> [CPTPP].
28 Droege and others, above n 25, at 208.
29 At 208.
30 At 227–228.
regional agreements — for example, Chapter 20 of the CPTPP is dedicated to

the environment and recognises “the importance of mutually supportive trade
and environmental policies and practices to improve environmental protection
in the furtherance of sustainable development”.31
2.3 Should Trade be used to Support Climate Goals?
The UN climate regime takes somewhat of an “arms-length” stance with

the international trade regime in that it neither relies on trade restrictions to
advance mitigation goals, nor takes a position on recourse to such measures in
the climate context.32 The UNFCCC states:33
The Parties should cooperate to promote a supportive and open international

economic system that would lead to sustainable economic growth and
development in all Parties, particularly developing country Parties, thus
enabling them better to address the problems of climate change. Measures
taken to combat climate change, including unilateral ones, should not constitute
a means of arbitrary or unjustifiable discrimination or a disguised restriction
on international trade.
As such, the UNFCCC effectively refers parties to existing trade law by

reiterating the rule contained in GATT, art XX, as opposed to expressly
condoning or prohibiting the use of trade measures.34 The Paris Agreement does
not reference trade therefore the UNFCCC approach remains authoritative.35
There are divergent views on whether trade should be used to support
climate goals. The Paris Agreement does not reference trade mainly due to
diverging positions of developed and developing countries in this regard. 36
As trade measures may involve differentiated groups of countries, including
substantive environmental provisions may run afoul of the UNFCCC’s principle
of CBDRRC.37 It is also feared by some that an increased reliance on trade to
support climate goals will burden the negotiation and ratification of otherwise
growth-improving trade agreements, or that it will spark a proliferation of
causes for the trade system to address.38 However, climate change is a global
31 CPTPP, above n 27, art 20.3.

32 Bodansky, Brunnee and Rajamani, above n 19, at 347.
33 UNFCCC, above n 7, art 3.5.
34 Bodansky, Brunnee and Rajamani, above n 19, at 347.
35 At 347.
36 Droege and others, above n 25, at 200–201.
37 Baron and Garrett, above n 23, at 17–18.
38 James Bacchus Global Rules for Mutually Supportive and Reinforcing Trade and Climate
Regimes (E15 Expert Group on Measures to Address Climate Change and the Trade
problem and requires a global response to which the cooperation of other

international regimes is vital. The trade regime has an important role to play
in this regard and the WTO has a clear mandate to ensure economic progress
is achieved in accordance with the objective of sustainable development under
the Marrakesh Agreement. Baron and Garrett describe:39
The reference to sustainable development and the need to protect and

preserve the environment as a parallel objective in the preamble to the WTO’s
founding agreement demonstrates intent by governments for the international
trade regime to take environmental considerations into account. The broad
international consensus in the COP21 Paris Agreement and on Agenda
2030’s Sustainable Development Goals supports the view that trade policy
settings should consider public well-being in addition to the aim of promoting
economic growth. Because environmental challenges like climate change are
systemic and cut across policy domains, beyond traditional environmental
policy mandates, they require economy-wide action. This includes in the area
of trade.
The relationship between international trade and climate change is com

plex. International trade has significantly contributed to climate change by
enabling worldwide consumption of carbon-intensive products. However,
it can also play an important role in the mitigation of climate change — for
example, trade liberalisation can promote uptake of climate-friendly goods
and services and foster deployment of clean technologies.40 The relationship is
changing particularly with the universal NDC approach adopted under the Paris
Agreement which will likely see a change in synergies and conflicts between
the two regimes, and changes to the political landscape will also pose new
challenges for trade and climate policy interactions (particularly following the
USA’s indicated withdrawal from the Paris Agreement).41 Ultimately, many call
for greater cooperation between the regimes as a whole to advance the goals of
the Paris Agreement and benefit international trade and development.42
One area in this regard is working together to achieve massive improve
ments in energy efficiency, a huge scale-up in the production of renewable
System, E15Initiative: International Centre for Trade and Sustainable Development and
World Economic Forum, Geneva, Policy Options Paper, January 2016).
39 Baron and Garrett, above n 23, at 16.
40 See Droege and others, above n 25; and Philipp Aerni and others “Climate Change and
International Law: Exploring the Linkages between Human Rights, Environment, Trade
and Investment” (2010) 53 German YB Int’l L 139 at 159.
41 Droege and others, above n 25, at 196–197.
42 See Bacchus, above n 38.
energy and enhanced access to clean energy technologies, vital to limit tem
perature increases to well below 2oC.43 As part of this objective, it is widely
agreed that the international community must phase out fossil fuel subsidies to
reduce incentives to the production and consumption of fossil fuels.
3. FOSSIL FUEL SUBSIDIES
3.1 Defining Fossil Fuel Subsidies
There is no universal definition of what constitutes a fossil fuel subsidy

nor is there a consensus on the best methodology to measure them, and as
a result, estimates of the size of fossil fuel subsidies vary hugely. 44 Several
international organisations including the International Energy Agency (IEA),
the International Monetary Fund (IMF) and the Organisation for Economic
Co-operation and Development (OECD) report on fossil fuel subsidies, but
do so with different definitions, methods and estimates.45
The only internationally agreed legal definition of a subsidy as a whole is
in the WTO Agreement on Subsidies and Countervailing Measures (ASCM)
which defines subsidies as a financial contribution or any form of income
or price support that confers a benefit upon the recipient.46 This definition is
relatively narrow as it must meet the ASCM’s subsidy requirements, ultimately
with a view to capturing trade-distorting subsidies, as described in section II.D.
Taking a broader approach, at the most basic level, fossil fuel subsidies can
be described as government policies to support the consumers or producers of
fossil fuels.47 Consumer subsidies reduce the cost of fossil fuels for consumers
and are mainly used in developing countries. Producer subsidies benefit the
producers of fossil fuels by raising the price or lowering production costs
43 Das and others, above n 8, at 10.

44 Thijs Van de Graaf and Harro van Asselt “Introduction to the special issue: energy subsidies
at the intersection of climate, energy, and trade governance” (2017) 17(3) International
Environmental Agreements: Politics, Law and Economics 313 at 316–317.
45 At 317.
46 Agreement on Subsidies and Countervailing Measures (15 April 1994) 1869 UNTS 14
[ASCM], art 1.
47 Van de Graaf and van Asselt, above n 44, at 317. In comparison to the ASCM, the broader
definition makes it possible to capture better the wide range of government measures
commonly used to support the production or consumption of fossil fuels/energy — for the
purposes of this article, fossil fuel subsidies will refer to subsidies in the broader sense,
unless otherwise specified.
and are present in a wide range of countries, including both developed and
developing countries.48
Fossil fuel subsidies can be interpreted in a way that includes a range of
direct and indirect government measures. Some of the most common types
of government support to fossil fuel production and consumption include
the direct transfer of funds (eg cash payments, grants), foregone tax revenue
(eg deviations and exemptions from standard tax rules), other foregone
government revenue (eg beneficial terms of access to resources), transfer of risk
(eg provision of loans or loan guarantees at below market rates, government
ownership, insurance or indemnification provided by government at below
market prices), and induced transfers of funds (eg measures whereby funds are
transferred to actors following government intervention such as cross-subsidies
between regions or sectors, import or export restrictions). 49 However, there
is a lack of consensus as to whether all of these constitute a subsidy. Further,
whether the value of non-internalised externalities should be included in
subsidy accounting is a major source of contention among environmental
economists.50
These differing approaches have led to widely varying calculations of
how much global fossil fuel subsidies add up to. The OECD 2017 “Inventory
of Support to Fossil Fuels” (Inventory) tracked annual support measures for
fossil fuel production and consumption in OECD countries and eight partner
economies,51 and estimated the overall value of these measures at US$150–
250 billion annually from 2010 to 2016. 52 Combining the OECD’s bottom-
up estimates of government support to individual programmes with the IEA’s
top-down estimates of consumer price support results in an aggregate estimate
of between US$373–617 billion annually over the period 2010 to 2015 (for
production and consumption subsidies).53 The IEA itself estimates global fossil
fuel consumption subsidies at more than US$300 billion in 2017,54 whilst the
48 Cleo Verkuijl and others Tackling Fossil Fuel Subsidies through International Trade
Agreements (Climate Strategies, November 2017) at 11.
49 At 13. Van de Graaf and van Asselt, above n 44, at 317.
50 Van de Graaf and van Asselt, above n 44, at 317.
51 Argentina, Brazil, Colombia, China, India, Indonesia, Russia and South Africa.
52 Organisation for Economic Co-operation and Development OECD Companion to the
Inventory of Support Measures for Fossil Fuels 2018 (OECD Publishing, 2018) <http://
www.oecd.org/environment/oecd-companion-to-the-inventory-of-support-measures-for-
fossil-fuels-2018-9789264286061-en.htm> [OECD Inventory] at 9.
53 At 10. The combined dataset covers 76 economies that collectively contribute 94 per cent
of global CO2 emissions.
54 World Energy Outlook “Fossil Fuel Subsidies” (2018) International Energy Agency
<https://www.iea.org/weo/energysubsidies/>. “The IEA estimates subsidies to fossil fuels
that are consumed directly by end-users or consumed as inputs to electricity generation. The
price-gap approach, the most commonly applied methodology for quantifying consumption
IMF includes consumption-related externalities in its definition of “post-tax

subsidies”, which brings its estimate of global fossil fuel subsidies to US$5.3
trillion in 2015.55
OECD statistics indicate there has been somewhat of a general downward
trend in fossil fuel subsidies. However, there is still significant work to be done
to phase them out.56 The OECD claims that over the past two decades only
a quarter of the total number of measures in the Inventory have been phased
out, whilst 21 measures have been added over the past two years.57 Whilst
estimates vary, even by the most conservative estimates, fossil fuel subsidies
clearly involve vast amounts of money and amount to significantly more than
subsidies to renewables.58
3.2 The Importance of Phasing Out Fossil Fuel Subsidies
Burning fossil fuels will continue to provide us with a primary source of energy
until clean energy sources become more competitive than carbon-intensive
fuels, even though we know that this produces harmful greenhouse gases. New
data projects global fossil carbon dioxide (CO2) emissions increased by 2.7 per
cent in 2018 to 37.1 gigatonnes (Gt) of CO2 — the largest increase in seven
years.59 Whilst some countries have prioritised a transition away from fossil
fuels (as discussed below in part 3.3), governments still spend significant funds
to incentivise their production and consumption.
Governments often justify fossil fuel subsidies on socio-economic and
political grounds, in particular that they are beneficial to the poor. However,
these subsidies frequently do not fulfil this objective — the IMF states that
existing fossil fuel subsidies overwhelmingly go to the rich, with the wealthiest
20 per cent of people getting six times as much as the poorest 20 per cent in
low- and middle-income countries.60 It is now widely recognised that fossil
subsidies, is used for this analysis. It compares average end-user prices paid by consumers
with reference prices that correspond to the full cost of supply … .”
55 David Coady and others How Large Are Global Energy Subsidies? (International Monetary
Fund, Working Paper, WP/15/105, 2015) at 17–22.
56 OECD Inventory, above n 52.
57 At 10.
58 Laura Merrill and others Tackling Fossil Fuel Subsidies and Climate Change: Levelling the
energy playing field (Nordisk Ministerrad, Copenhagen, 2015) at 7.
59 Le Quere and others, above n 3.
60 Damian Carrington “Fossil fuels subsidized by $10m a minute, says IMF” The Guardian
(online ed, London, 18 May 2015) <https://www.theguardian.com/environment/2015/
may/18/fossil-fuel-companies-getting-10m-a-minute-in-subsidies-says-imf>. See also
Chris Wold, Grant Wilson and Sara Foroshani “Leveraging Climate Change Benefits
through the World Trade Organization: Are Fossil Fuel Subsidies Actionable?” (2012)
43 Geo J Int’l L 635 at 642.
fuel subsidies have huge environmental, economic and social implications.

Firstly, they encourage carbon emissions and lock in carbon-intensive energy
systems for decades into the future;61 they also have distorting impacts on trade
and investment and artificially enhance the competitiveness of fossil fuels.62
Furthermore, they are a burden on government budgets and divert investment
from other pressing development objectives such as healthcare and education,
as well as the development and deployment of renewable energy technologies
which represents a major impediment to a transition to sustainable energy.63
The impacts of phasing out fossil fuel subsidies are estimated to be signifi
cant, although figures vary depending on what is classified as a subsidy. The
2018 UNEP Report estimates that if all fossil fuel subsidies were removed,
emissions could be reduced by up to 10 per cent by 2030.64 Other models show
that the removal of global consumption subsidies could lead to a reduction
in emissions of between 6 per cent and 13 per cent by 2050, with potential
for more if the savings were at least partially reinvested in renewables and
energy efficiency.65 A 2017 study by the International Institute for Sustainable
Development (IISD), Global Subsidies Initiative (GSI) and the Overseas
Development Institute (ODI) claims that a complete removal of global
production subsidies would reduce the world’s emissions by 37 GtCO2 over
2017 to 2050.66 The IMF claims that eliminating post-tax subsidies could
cut global CO2 emissions by over 20 per cent, raise worldwide government
revenue by $2.9tn (3.6 per cent of global GDP in 2015), and cut air pollution
deaths by more than half.67 The scope for reduction is significant. However,
the varying figures produced by different organisations highlight the need for
greater certainty on what constitutes a subsidy and greater transparency on what
subsidies are in existence.
61 Henok Birhanu Asmelash “Energy Subsidies and WTO Dispute Settlement: Why only
Renewable Energy Subsidies Are Challenged” (2015) 18 Journal of International Economic
Law 261.
63 Wold, Wilson and Foroshani, above n 60.
64 UNEP Report, above n 4, at XXII.
65 Laura Merrill and others Fossil-Fuel Subsidies and Climate Change: Options for policy
makers within their Intended Nationally Determined Contributions (Nordic Council of
Ministers, Global Subsidies Initiative of the International Institute for Sustainable Develop
ment, Working Paper, Copenhagen, 2015) at 5; and Merrill and others, above n 58.
66 Ivetta Gerasimchuk Zombie Energy: Climate benefits of ending subsidies to fossil fuel
production (International Institute for Sustainable Development, Global Subsidies
Initiative, Overseas Development Institute, Working Paper, 2017).
67 Coady and others, above n 55, at 6.
3.3 International Support for Fossil Fuel Subsidy Reform
The 2009 G20 Pittsburgh Communiqué called on its members to “rationalize

and phase out inefficient fossil fuel subsidies that encourage wasteful con
sumption over the medium term while providing targeted support for the
poorest”, 68 a pledge subsequently echoed by the Asia Pacific Economic
Cooperation (APEC) group.69 It was reiterated by the G7 in 2016 who called
for an end to government support for coal, oil and gas by 2025 and encouraged
all countries to join them in eliminating “inefficient fossil fuel subsidies” within
a decade.70 Since 2009, the G20 and APEC have created processes for reporting
their fossil fuel subsidies and for conducting voluntary peer reviews.71 Whilst
self-reports of subsidies have attracted criticism for their omissions,72 the peer
reviews have at least increased a level of transparency (if not ambition).73
Another example of the widespread recognition of the issue is part of the
UN sustainable development goals (SDGs) in which Goal 12.C states the
target to:74
Rationalize inefficient fossil-fuel subsidies that encourage wasteful

consumption by removing market distortions, in accordance with national
circumstances, including by restructuring taxation and phasing out those
harmful subsidies, where they exist, to reflect their environmental impacts,
taking fully into account the specific needs and conditions of developing
countries and minimizing the possible adverse impacts on their development
in a manner that protects the poor and the affected communities.
68 Group of 20 “G20 Leaders Statement: The Pittsburgh Summit” (Pittsburgh, 24–25

September 2009) <http://www.g20.utoronto.ca/2009/2009communique0925.html>.
69 Asia-Pacific Economic Cooperation “2009 Leaders’ Declaration” (Singapore, 14 November
2009) <https://www.apec.org/Meeting-Papers/Leaders-Declarations/2009/2009_aelm>.
70 Group of 7 “G7 Ise-Shima Leaders’ Declaration” (Ise-Shima, 26–27 May 2016) <https://
www.mofa.go.jp/files/000160266.pdf >.
71 Ronald Steenblik, Jehan Sauvage and Christina Timiliotis “Fossil Fuel Subsidies and the
Global Trade Regime” in Jakob Skovgaard and Harro van Asselt (eds) The Politics of
Fossil Fuel Subsidies and Their Reform (Cambridge University Press, Cambridge, 2018) at
135.
72 See, for example, Elizabeth Bast and others Empty promises: G20 subsidies to oil, gas and
coal production (Overseas Development Institute, Research Report, November 2015).
73 Karl Mathiesen “US and China release fossil fuel subsidy peer reviews” The Guardian
(online ed, London, 20 September 2016) <https://www.theguardian.com/environment/2016/
sep/20/us-and-china-release-fossil-fuel-subsidy-peer-reviews>; Steenblik, Sauvage and
Timiliotis, above n 71, at 135.
74 Transforming our World: The 2030 Agenda for Sustainable Development GA Res 70/1,
A/RES/70/1 (2015) at Goal 12.C.
With regard to the Paris Agreement, there was much momentum around the
issue of fossil fuel subsidy reform on the sidelines of the negotiating process
at COP21.75 Whilst there is no mention of fossil fuel subsidies directly in the
Agreement, Wooders and Merrill argue that there are “hooks and processes”
included in the Agreement to encourage countries towards the removal of fossil
fuel subsidies.76 They state art 2 is a clear statement for parties to stem and
turn around the flow of fossil fuel subsidies in order to “make financial flows
consistent with a low emissions pathway and climate resilient development”.77
The most promising action comes from the inclusion by countries of the issue
of fossil fuel subsidy reform in their NDCs. GSI research identified that 13
NDCs included reference to fossil fuel subsidies or energy sector reform within
their NDCs, whilst 40 included broader references to wider fiscal instruments
such as government fiscal support to renewables or a carbon or energy tax.78
Despite widespread recognition of the need to phase out fossil fuel subsidies,
progress to implement these commitments has been slow. The international
trade regime has an important role to play. At the 11th WTO Ministerial
Conference 2017, the Friends of Fossil Fuel Subsidy Reform (FFFSR)79 hosted
a presentation of a Fossil Fuel Subsidies Reform Ministerial Statement (MC11
Statement), in which it urged the WTO to advance the discussion on fossil
fuel subsidies, asking for transparency and reform of inefficient fossil fuel
subsidies that encourage wasteful consumption.80 It built the case for action
under the WTO, suggesting that “trade and investment distortions caused by
fossil fuel subsidies reinforce the need for global action including at the World
Trade Organization”, and arguing that the WTO “can play a central role in
achieving effective disciplines on inefficient fossil fuel subsidies”.81 Whilst not
legally binding, it is an important expression of support by the 12 signatories.
A communiqué by the FFFSR (released outside the trade context in 2015) was
75 For a description of these side events see Peter Wooders and Laura Merrill “Fossil Fuel
Subsidy Reform: Big at the Climate Talks and in the Agreement?” (21 December 2015)
International Institute for Sustainable Development <https://www.iisd.org/gsi/subsidy-
watch-blog/fossil-fuel-subsidy-reform-big-climate-talks-and-agreement>.
76 See Wooders and Merrill, above n 75.
77 Paris Agreement, art 2; Wooders and Merrill, above n 75.
78 Anika Terton and others Fiscal Instruments in INDCs: How countries are looking to fiscal
policies to support INDC implementation (IISD, GSI, Discussion Paper, December 2015);
Wooders and Merrill, above n 75.
79 A coalition of non-G20 countries aiming to build political consensus on the importance of
fossil fuel subsidy reform. Current members are Costa Rica, Denmark, Ethiopia, Finland,
New Zealand, Norway, Sweden, Switzerland and Uruguay. See <fffsr.org>.
80 Fossil Fuel Subsidies Reform Ministerial Statement WT/MIN(17)/54, 12 December 2017
[Ministerial Statement]. Signatories: Chile, Cost Rica, Iceland, Liechtenstein, Mexico, the
Republic of Moldova, New Zealand, Norway, Samoa, Switzerland, Chinese Taipei and
Uruguay.
81 At 1.
endorsed by other countries outside the group (including G7 members Canada,

France, Italy, the United Kingdom and the United States) which demonstrates
that there are more countries supportive of the issue.82
3.4 How are Fossil Fuel Subsidies Currently Regulated by the International
Trade Regime?
3.4.1 WTO agreements
Fossil fuel subsidies are primarily covered by WTO agreements — GATT and
ASCM. The application of these agreements to fossil fuel subsidies has proven
difficult in practice to date, particularly due to the lack of information about the
scope and nature of such subsidies, and a lack of clarity as to whether they fit
the definitional criteria of (prohibited) subsidies.83
(i) GATT
Articles VI and XVI provide the basic principles on subsidies and countervailing
duties (CVDs) in the GATT/WTO system. Article VI provides for the imposition
of CVDs to offset subsidies on imports, if it is determined that the effect of
subsidisation of these imports “is such as to cause or threaten material injury to
an established domestic industry or … retard materially the establishment of a
domestic industry”.84 Article XVI “contains general provisions against subsidies
that expand the exports of primary products or lower the export prices of other
products below those prevailing in the domestic market”.85 The ASCM expands
upon both arts VI and XVI.
(ii) ASCM
The ASCM is an implementation agreement which seeks to limit the use of
subsidies by WTO members (Members) and regulates countervailing measures
with an aim to minimise market distortions caused by subsidies. Whilst it is
arguably a possible mechanism for challenging fossil fuel subsidies, the scope
to do so is narrow as it is necessary to satisfy a number of cumulative conditions
set out in the ASCM. Firstly, it needs to be determined whether the measure
being challenged meets the Agreement’s subsidy definition and falls within its
scope. To determine this, a three-part test must be met:
82 Friends of Fossil Fuel Subsidy Reform “Fossil-Fuel Subsidy Reform Communiqué” (2015)
<http://fffsr.org/communique/>.
83 Bodansky, Brunnee and Rajamani, above n 19, at 346–347.
84 GATT, above n 18, art VI 6(a).
85 Arvind Panagariya “Core WTO Agreements: Trade in Goods and Services and Intellectual
Property” (Columbia University, 2002) <http://www.columbia.edu/~ap2231/Courses/wto-
overview.pdf > at 13.
(1) The policy must be a “financial contribution” or “any form of income or

price support in the sense of Article XVI of GATT 1994” provided by
a government or public body.86 A financial contribution may take many
forms, including the direct transfer of funds, the provision of goods and
services, and the forgoing of revenue that is otherwise due;87 and
(2) The financial contribution or income price support must confer a benefit;88
and
(3) The subsidy must be “specific to an enterprise or industry, or group of
enterprises or industries, within the jurisdiction of the granting authority”
(Specificity Requirement).89
If a measure successfully meets the above criteria, it is a “subsidy” to which the

ASCM applies. In order to take action against the subsidy, it must be proven
that it is either “prohibited” (never permitted) or “actionable” (permitted, unless
certain types of trade effects, or the threat thereof, are demonstrated).
Prohibited subsidies are contingent upon export performance (export
subsidies)90 or upon the use of domestic over imported goods (local content
subsidies).91 Prohibited subsidies must be withdrawn if found to exist — there
is no requirement to demonstrate harm or specificity.92 However, fossil fuel
subsidies do not tend to be contingent upon domestic content requirements
or on export performance, therefore in most cases will not be classified as
“prohibited”.93
A subsidy is “actionable” when it is proven to cause “adverse effects to
the interests of other Members” namely when it causes actual (or threat of
an) “injury” to the domestic industry of another Member or causes actual (or
threat of ) “serious prejudice” to the interests of another Member.94 The injury
or serious prejudice must be to a domestic industry of a Member producing
a “like product”.95 The ASCM describes two distinct actions for challenging
actionable subsidies — namely, imposing CVDs on the subsidised imports,96
or seeking countermeasures by bringing a dispute at the WTO.97 In the context
of fossil fuel subsidies, a difficult challenge comes in the form of meeting the
86 ASCM, above n 46, art 1.1(a).

87 Article 1.1(a)(1)(i)–(iv).
88 Article 1.1(b).
89 Article 2.1.
90 Article 3.1(a).
91 Article 3.1(b).
92 Article 4.7.
93 Asmelash, above n 61, at 281.
94 ASCM, above n 46, art 5.
95 Article 6.3.
96 Articles 10–23.
97 Article 7.
Specificity Requirement — given that the benefits of such subsidies generally

accrue to a broad group of producers or consumers (or both), and hence are
unlikely to be found specific.98 Whilst it may be possible to prove specificity
depending on the circumstances, in many cases finding sufficient evidence to
support a successful argument (ie proving specificity, as well as adverse effects
(on its “like” industry)) would be challenging. A recent report by Verkuijl and
others demonstrates that most consumer support measures are likely to fall
outside the scope of the ASCM due to the difficulty in meeting these high
threshold tests, and therefore are hard to litigate under WTO law.99 It further
suggests that producer subsidies are also hard to be captured by the ASCM —
in large part because of an absence of readily available information.100 Overall,
whilst it would need to be assessed on a case-by-case basis, it is foreseeable
that a fossil fuel subsidy could potentially be challenged under the ASCM —
however, the scope for doing so is very narrow. Some argue the GATT/ASCM
regime is simply not sufficient (as it currently stands) to discipline fossil fuel
subsidies effectively.101
3.4.2 Why have fossil fuel subsidies not been challenged through the WTO
system?
The narrow scope of the ASCM is one of the reasons there have been no
challenges to fossil fuel subsidies under the WTO system to date. Countries
are less likely to initiate a formal WTO case unless they have a good chance of
winning, particularly considering the costs involved and the risk of adversely
affecting diplomatic relations with a trading partner.102 Another major obstacle
is a lack of transparency. The ASCM specifies Members should notify their
subsidies, providing sufficient details to allow other Members to assess the
impacts on trade.103 However, notification rates of subsidies have generally
been low due to a lack of commitment, a lack of clarity about which subsidies
need to be reported, and the inherent difficulties of estimating them.104 The
mechanisms included in the ASCM to counter lack of (notification) compliance
have also been hard to implement in reality.105 To bring a successful challenge,
a country would need to obtain and analyse large amounts of data — which

99 Verkuijl and others, above n 48.
100 At 54.
101 Trachtman, above n 6, at 7.
103 ASCM, above n 46, art 25.
104 Droege and others, above n 25, at 244; Verkuijl and others, above n 48, at 55.
105 ASCM, above n 46, arts 26, 25.8, 25.10.
is difficult given the limited data available — and many countries lack the
resources required to effectively undertake this process.
There are also a number of political reasons suggested for a lack of
action. Industry pressure groups, which play an important role in compelling
governments to take action against another Member, have been relatively
passive for various reasons (including that many of these groups financially
benefit from fossil fuel subsidies).106 In the absence of any request from affected
industries, governments are unlikely to take action against foreign subsidies.107
Further, fears of retaliatory litigation or counter-claims may override one
Member’s incentives to initiate disputes at the WTO.108 Given fossil fuels are
subsidised in almost all countries to some extent, countries may be reluctant to
expose their own subsidy programmes to scrutiny.109
In contrast, there have been a number of disputes at the WTO concerning
renewable energy subsidies in recent years. To date, these disputes have
primarily focused on domestic content requirements present in renewable
energy schemes. Such subsidies can be challenged as “prohibited” under
the ASCM, or as discriminatory measures contrary to the national treatment
obligation of GATT 110 and the Agreement on Trade Related Investment
Measures (TRIMS).111 These cases highlighted the difficulty of meeting the
high threshold tests under the ASCM. For example, in the Canada-Renewable
Energy case,112 adjudicating bodies were unable to establish if the measures
violated the ASCM and the success of the complainants hinged instead on
findings that violations of the TRIMS Agreement and GATT had occurred.113
This outcome suggests that in some cases (ie cases that deal with local content
subsidies for example) it may be more feasible to demonstrate that a subsidy
represents a violation of the TRIMS Agreement or GATT than of the ASCM.114
For other support measures (notably those without local content requirements),
a challenge under the ASCM may be the only avenue available under WTO
106 Asmelash, above n 61, at 282–284.

107 At 282–284.
108 Wold, Wilson and Foroshani, above n 60, at 635.
110 GATT, above n 18, art III (requires members to treat imported goods no worse than “like”
domestic goods).
111 Agreement on Trade Related Investment Measures (15 April 1994) 1868 UNTS 186
[TRIMS].
112 Canada — Certain Measures Affecting the Renewable Energy Generation Sector /
Canada — Measures Relating to the Feed-in Tariff Program WT/DS412/AB/R / WT/
DS426/AB/R, 6 May 2013 (Report of the Appellate Body).
113 Verkuijl and others, above n 48, at 25.
114 Dominic Coppens WTO Disciplines on Subsidies and Countervailing Measures: Balancing
Policy Space and Legal Constraints (Cambridge University Press, Cambridge, 2014) at
142, as discussed in Verkuijl and others, above n 48, at 25.
law. Since fossil fuel subsidies tend to be more consumer targeted and non-
discriminatory, it is unlikely that they will be able to be challenged through
the TRIMS Agreement. The only viable avenue is via the ASCM which, as we
have seen, is challenging to prove they meet the specificity and adverse effect
thresholds.115
3.4.3 Trade agreements
To date, there have been few examples of fossil fuel subsidy reform being
successfully included in RTAs. One example is the recent EU-Singapore Free
Trade Agreement, art 12.11.3 of which states:116
The Parties recognise the need to ensure that, when developing public
support systems for fossils fuels, proper account is taken of the need to
reduce greenhouse gas emissions and to limit distortions of trade as much
as possible. While subparagraph (2)(b) of Article 11.7 (Prohibited Subsidies)
does not apply to subsidies to the coal industry, the Parties share the goal of
progressively reducing subsidies for fossil fuels. Such a reduction may be
accompanied by measures to alleviate the social consequences associated
with the transition to low carbon fuels. In addition, both Parties will actively
promote the development of a sustainable and safe low-carbon economy, such
as investment in renewable energies and energy efficient solutions.
This agreement is not yet in force, but it is a promising example of how the
issue can be specifically included in RTAs.
Another example, although not specific to fossil fuel subsidies, is Chapter
20 of the CPTPP which contains a recognition of “the importance of mutually
supportive trade and environmental policies and practices to improve
environmental protection in the furtherance of sustainable development”,117
an acknowledgement “that transition to a low emissions economy requires
collective action” and the possibility of cooperation on “clean and renew
able energy sources”.118 It also contains commitments to ban subsidies that
encourage overfishing — as part of these provisions, parties are required to
provide information about fossil fuel subsidies as a form of fisheries subsidy.119
In earlier negotiations a proposal was made to link the agreement to voluntary
commitments made under APEC to take action with a view to rationalising and

116 EU-Singapore Free Trade Agreement (signed 19 October 2018, not yet in force),
art 12.11.3.
117 CPTPP, above n 27, art 20.3.
118 Article 20.15.
119 Article 20.16.
phasing out fossil fuel subsidies, but it was not included in the final text due
to opposition from some countries.120 This highlights the political challenges
that exist to create binding obligations on parties through the channel of RTAs.
However, it is an avenue that has potential to advance reform as discussed in
part 4 of this article.
There are a number of obstacles to challenging fossil fuel subsidies with
a view to phasing them out under existing legal frameworks. However, the
international trade regime, with the WTO at the centre, is an obvious candidate
for advancing fossil fuel subsidy reform for a number of reasons, and part 4
will look at why and how.
4. HOW CAN THE INTERNATIONAL TRADE REGIME

HELP TO PHASE OUT FOSSIL FUEL SUBSIDIES?
Fossil fuels are traded extensively internationally, therefore national subsidy

practices can affect international prices and have a distorting impact on trade
and investment. This puts fossil fuel subsidies squarely within the WTO’s
mandate and makes them directly relevant for the achievement of the WTO
trade liberalisation goals.121 The WTO is the main international organisation to
discipline trade-distorting subsidies and has a significant amount of experience
in developing, interpreting and applying rules about subsidies. It has in
place institutional infrastructure to promote compliance including analytical,
reporting, surveillance (including the Trade Policy Review Mechanism) and
dispute settlement capabilities that fit well with the institutional needs of a
fossil fuel subsidy reduction mechanism.122 Although parallels should not be
overstated, the WTO also has prior experience in engaging on reducing special
sectoral subsidies and environmentally harmful subsidies such as fisheries.123
As previously discussed, the WTO also has a clear mandate to ensure
economic progress is achieved in accordance with the objective of sustainable
development, and SDG 12 strengthens the rationale for addressing fossil fuel
subsidies within the WTO.124 The WTO has a wide membership from both
developed and developing countries, suggesting its efforts to govern fossil fuel
subsidies could be considered more legitimate than those of a smaller group of
countries.125 Membership includes the major trading states which is particularly
relevant in the context of progressing climate action at a time when the USA has
120 Steenblik, Sauvage and Timiliotis, above n 71, at 134.

121 Verkuijl and others, above n 48, at 65; Trachtman, above n 6, at 3.
123 At 18; Verkuijl and others, above n 48, at 10.
125 At 65.
indicated its withdrawal from the Paris Agreement. Different states will have
different interests in connection with fossil fuel subsidies, and the WTO offers
opportunities to induce states to change their policies in exchange for policy
concessions in other fields by other states.126 Ultimately the WTO is a forum for
exchange of diverse commitments, making negotiation through cross-sectoral
bargaining more likely to reach agreement.127 There is also an important role for
RTAs to make a significant contribution to complement progress in the WTO
and even in instances go further than the WTO, depending on the parties.
Potential ways the trade regime could progress reform, as suggested by
different commentators, are discussed here. These options are not necessarily
mutually exclusive, and many would be more effective if adopted together.
Ultimately some will be more feasible than others, particularly in the current
global political climate. However, the gravity of climate change ultimately
requires the international community to overcome these issues in order to
achieve the massive global energy shift required.
It is important to note that any successful effort to address fossil fuel
subsidies would need to adequately address the special circumstances of
developing countries, potentially via special and differential treatment
provisions, including potential exemptions and carve-outs for development
needs.128
4.1 Enhance Transparency
Improved transparency would help shed light on what subsidies are being
provided, especially by countries that are not reporting or undergoing
reviews in other forums,129 which is a vital first step in the pathway to reform.
Transparency can help avoid the emergence of disputes, instead generating
dialogue and promoting clarity, as well as options for reform.130
4.1.1 Self-notification
It has been suggested that in order to improve notifications, Members could

(unilaterally or plurilaterally) voluntarily notify fossil fuel subsidies under
the ASCM according to a common template.131 Self-reporting could help
governments and other stakeholders better understand what subsidies are being

127 At 18.
129 For example, the voluntary peer reviews under the G20 and APEC.
130 Das and others, above n 8, at 40–41.
granted and track efforts to reform them over time.132 By using an improved
notification template, it is suggested that barriers of ambiguous requirements
and other technical difficulties from the use of the current template could be
overcome.133 Although self-reporting may mean that only a limited number of
subsidies are notified, arguably it is a first step towards more transparency and
the path to a mandatory system.134 It would require some Members to take the
lead and be confident that their notifications would not necessarily lead to a
challenge before the WTO dispute settlement system.135
4.1.2 Counter-notification
Another option already possible within existing rules is counter-notification.

The ASCM provides that where a Member fails to notify a measure that it
should have notified, any other Member may bring this matter to the attention of
the Member failing to notify.136 The latter should promptly notify, but if it fails
to do so, the former may bring the matter to the notice of the WTO Committee
on Subsidies and Countervailing Measures.137 It is suggested by Asmelash that
counter-notifications could be used more effectively — for example, Members
that notify a particular type of fossil fuel subsidy under the ASCM may cross-
notify similar types of subsidies provided by other Members.138 Counter-
notifications are relatively rare to date, in large part because they are likely to
trigger detailed scrutiny of the counter-notifying Member’s own notifications
which would likely be an ongoing limitation of this as an option.139
4.1.3 Trade Policy Review Mechanism
The WTO Secretariat could seek to consistently include fossil fuel subsidies
within its Trade Policy Reviews (TPRs) under the Trade Policy Review
Mechanism (TPRM).140 As part of these reports to the Trade Policy Review
132 At 62.
133 At 62.
134 At 62; Das and others, above n 8, at 40–41.
136 ASCM, above n 46, art 25.10.
137 Article 25.10.
138 Henok Birhanu Asmelash Phasing Out Fossil Fuel Subsidies in the G20: Progress,
Challenges and Ways Forward (International Centre for Trade and Sustainable Develop
ment, Think Piece, September 2017) at 14.
139 At 13–14.
140 The Trade Policy Review Mechanism is intended to add transparency and improve
understanding about trade policies and other practices of individual WTO Members. The
Secretariat prepares and publishes periodic TPRs of each Member, as well as an annual
review of the state of the trading system, and the monitoring reports on measures taken
Body, the Secretariat can warn or express concern on the basis of its analysis.141
Currently there is a lack of consistency among TPRs as to the reporting of
fossil fuel subsidies in that some do not mention them at all, whilst others
contain widely varying degrees of detail, in part depending on what information
is available. 142 Members could on their own initiative (unilaterally or
plurilaterally) decide to include information on fossil fuel subsidies in their
reports in response to the TPR.143 Countries belonging to the FFFSR already
seek to consistently raise the issue in their questions and statements under the
TPRM, with a view of encouraging progress by other Members.144
In its development of TPRs, the Secretariat has the discretion to make use
of, and refer to, analyses prepared by third parties, but there appears to be a lack
of consistency as to how much of these analyses are included in reports.145 The
WTO Secretariat could seek to collect data more systematically on fossil fuel
subsidies without formal approval of Members, although it is acknowledged
that this would require resources.146 Casier and others highlight the opportunity
for non-governmental organisations (NGOs) to strengthen the process by
providing third-party notification to the Secretariat of missing data (that NGOs
can access from publicly available sources) using a common template.147 It has
been suggested also to grant civil society organisations, and other stakeholders
with expertise, observer status at TPRM meetings with a view to facilitating
the interaction with external experts holding valuable information on fossil fuel
subsidies.148 It is suggested by Das and others that options related to using the
TPRM to enhance transparency seem feasible in the short term, particularly as
it uses existing frameworks.149
4.1.4 Strengthen ASCM notification requirements
Another potential avenue is to strengthen the enforceability of existing

notification requirements under the ASCM. This would likely require an
amendment of the ASCM as art 25 does not specify which types of subsidies
in response to the financial crisis. The Secretariat has the mandate to consider fossil
fuel subsidies and fossil fuel subsidy reform in TPRs. See Liesbeth Casier and others
“Shining a Light on Fossil Fuel Subsidies at the WTO: How NGOs can Contribute to WTO
Notification and Surveillance” (2014) 13(4) World Trade Review 603 at 617–618.
141 At 617. Discussion in the TPRB does not imply whether a measure is “actionable” or not.
142 For further detail see Verkuijl and others, above n 48, at 56–58.
143 At 62.
147 For further discussion including a suggested template see Casier and others, above n 140.
should be notified (beyond those meeting the definition of arts 1 to 2) and

does not specify any consequences for incomplete notifications.150 Bacchus
suggests that in order to achieve this, it is possible to “mandate full disclosure
of fossil fuel subsidies under the WTO rules, affirm that fossil fuel subsidies
are actionable subsidies under those rules and agree on the gradual phase out
and ultimate prohibition of such subsidies”.151 It is likely that any mandatory
obligation to disclose would likely run into significant opposition, at least
in the short to medium term.152 Das and others suggest that, generally, new
notification requirements would likely only be accepted if accompanied by
new rules focused specifically on fossil fuel subsidies, as has been seen in
previous subsidy reform processes (such as agriculture and fisheries).153 They
suggest that strengthening transparency under the WTO could receive a boost
if progress is made as part of the SDG process.154 Under Goal 12.C.1, UNEP is
leading efforts to develop a methodology for measuring fossil fuel subsidies. If
this methodology is adopted, UNEP would be responsible for collecting data on
UN members for the period 2020 to 2030 and this could reinforce efforts under
the WTO, including on notifications.155
4.2 Adopt a Political Declaration
Another option is for WTO Members to adopt a political declaration. Such

an initiative could take the form of statements of intent regarding fossil
fuel subsidies in the context of the WTO.156 The value of a declaration lies
in providing clarity on how WTO rules apply to fossil fuel subsidies and/or
offering a signal that the WTO seeks to advance reform.157
One option in this regard would be to negotiate an interpretation of
the scope of the ASCM — ie a political understanding on how fossil fuel
subsidies — or specific types thereof — would fall under the definition of art
1.158 Verkuijl and others suggest such a declaration could be considered either
a “subsequent agreement between the parties regarding the interpretation of
the treaty or the application of its provisions” or “subsequent practice in the
application of the treaty which establishes the agreement of the parties regarding
150 At 40–41; Verkuijl and others, above n 48, at 62.

151 Bacchus, above n 38, at 17.
153 At 42.
154 At 42.
155 At 42.
156 At 44.
158 At 63.
its interpretation” under the Vienna Convention on the Law of Treaties.159 As

such, it would be relevant for interpreting the ASCM.160
Another option would be to clarify the mandate of the CTE to discuss
the reform of fossil fuel subsidies or, more generally, state their support for
addressing the issue under the WTO.161 As Verkuijl and others describe, this
could be done broadly by affirming support of commitments related to climate
change action made elsewhere (such as through the Paris Agreement).162 More
specifically, it could affirm or refer to commitments to address fossil fuel
subsidies (eg by the G20 or APEC).163
Overall, the feasibility of this option is relatively high in the short term.
Whilst such declarations are helpful, their effectiveness in real terms will be
determined by the ability to attract sufficient support and use the declaration to
take concrete steps towards the adoption of legal commitments or disciplines
at the WTO.164 For example, the challenge for the FFFSR will be mobilising
other countries and moving the issue forward beyond the MC11 Statement.165
4.3 Pledge and Review
WTO Members, unilaterally or plurilaterally, could make a non-binding pledge

to eliminate or progressively reduce their fossil fuel subsidies as well as to
report progress and review each other’s advances.166 Through this mechanism,
commitments to action could be anchored to the WTO, with Members peer-
reviewing each other’s reports to share lessons and increase ambition. This
approach could build on the ASCM, and could seek to link to other voluntary
commitment and review processes (eg under the G20 and APEC), but extend
to Members that do not participate in such forums.167
It is suggested that the adoption of (voluntary) commitments by states to
reform or remove fossil fuel subsidies can increase the reputational costs of
reneging on that commitment.168 The process itself could even be seen as a
159 Vienna Convention on the Law of Treaties (signed 23 May 1969, entered into force
27 January 1980) 1155 UNTS 331, art 31.3(a) and (b). See Verkuijl and others, above n 48,
at 63.
160 At 63.
161 At 8.
162 At 63.
163 At 63.
165 At 44.
167 At 62–63.
168 Joel E Smith and Johannes Urpelainen “Removing Fuel Subsidies: How Can International
Organizations Support National Policy Reforms?” (2017) 17(3) International Environ
mental Agreements: Politics, Law and Economics 327.
confidence-building exercise that could pave the way for binding disciplines
on fossil fuel subsidies.169 Trachtman suggests that a regular pledge of subsidy
reform could make it part of a bargaining process, allowing Members to
trade off commitments to reform fossil fuel subsidies with other trade-related
commitments.170
This option would likely need the support of at least G20 and APEC
members to avoid a duplication of efforts — whilst G20 and APEC groups
have made commitments to phase out and rationalise inefficient fossil fuel
subsidies, getting their members to follow up under the umbrella of the WTO
likely presents a significant political hurdle.171 Members may also fear being
challenged before WTO dispute settlement if they fail to fulfil their pledges.172
Das and others state that the short-term feasibility of pursuing this option within
the WTO seems low, but a small group of Members acting outside the formal
process on a voluntary basis would increase its chances.173
4.4 Promote Technical Assistance and Capacity-Building
Some countries lack the necessary resources, capacity and technical expertise
to identify existing subsidies as a first step to reform. Capacity-building and
technical assistance provided by the WTO on how to identify, measure and
evaluate fossil fuel subsidies may help overcome this challenge. It could help
Members to improve understanding of subsidies, their impacts on trade and
the environment and anticipated effects of reform, and strengthen transparency
by identifying what subsidies should be notified.174 Such assistance could also
be in the form of sharing experiences with previous reform of fossil fuels or
wider energy subsidies, which would help Members better understand the
circumstances under which subsidy reform is appropriate, and how it can be
made to work and support a country’s wider development goals and plans.175
As part of a technical assistance process, special consideration and support
should be given to how the poor and vulnerable in society can be supported
after reform and could include a focus on vulnerable sectors of the economy
(eg energy-intensive, trade-exposed sectors).176
This is a conceivable option given that the WTO Secretariat has long-
standing experience of building capacity and providing technical assistance

172 At 43.
173 At 43.
176 At 61.
to developing countries on trade-related matters.177 Verkuijl and others suggest

Members could make use of the Enhanced Integrated Framework (EIF) for
Trade-Related Assistance for the Least Developed Countries (LDCs).178
However, the International Centre for Trade and Sustainable Development
(ICTSD) argues that while this option may support LDCs in better
understanding their fossil fuel subsidies, it falls short of spurring action on
fossil fuel subsidy reform in developing countries that are not LDCs, as well as
in developed countries.179
Das and others outline that without a clear mandate from Members, it
would be difficult for the Secretariat to focus technical assistance specifically
on fossil fuel subsidies as opposed to subsidies in general and would require
specific expertise and resources that other international and non-governmental
organisations possess.180 Technical assistance and capacity-building for fossil
fuel subsidies may be more feasible if carried out as part of a broader effort
to improve general compliance with the ASCM obligations.181 If any new
agreement on disciplines specifically focused on fossil fuel subsidies were to
be adopted (discussed below in part 4.6), it may be possible to link technical
assistance and capacity-building to those disciplines. As a result this may be a
mid- to long-term option.182 It is noted that there are a number of international
and non-governmental organisations which are already active in this field (such
as the World Bank (and its Energy Sector Management Assistance Program), the
IMF and the GSI), and therefore there would need to be effective coordination
177 The WTO aims to help developing countries participate more effectively in global trade
through trade-related technical assistance. Such assistance is aimed at government officials
implementing or negotiating trade agreements, as well as broader audiences, and covers a
variety of areas, including trade policy formulation and implementation, compliance with
WTO obligations and WTO negotiations. Activities include training courses, workshops
and outreach. Technical assistance is provided through the WTO Secretariat, and overseen
by the WTO’s Committee on Trade and Development. In addition to technical assistance,
the WTO Secretariat partners with other organisations to implement capacity-building
initiatives <https://www.wto.org/english/tratop_e/devel_e/teccop_e/tct_e.htm>.
178 The Enhanced Integrated Framework is a multilateral partnership dedicated exclusively
to assisting LDCs in their use of trade as an engine for growth, sustainable development
and poverty reduction. The EIF partnership of 51 countries, 24 donors and eight partner
agencies works closely with governments, development organisations, civil society and
academia; see WTO website <http://www.wto.org/english/tratop_e/devel_e/teccop_e/if_e.
htm>. It is suggested to be well placed to support the development of knowledge and
capacity-building for fossil fuel subsidy reform in LDCs; see Verkuijl and others, above
n 48, at 61.
179 International Centre for Trade and Sustainable Development Reforming Fossil Fuel
Subsidies through the Trade System (WTO: Paths Forward, ICTSD, Geneva, Policy Brief,
2018) [ICTSD] at 4.
181 At 40.
182 At 39–40.
and cooperation with these organisations to ensure value is added to the process
and avoid duplication of efforts.183
4.5 Amend the ASCM
Legal reform of the ASCM could provide far more opportunities to account for
and discipline fossil fuel subsidies compared to using the existing agreement
as it is.184 It has been suggested that the ASCM should be amended to include
fossil fuel support as a category of “prohibited” subsidies under art 3 (in
addition to export subsidies and local content subsidies).185 Such a prohibition
could be applied to a specific subset only — for example, based on particular
trade-related or environmental effects.186 Whilst it would likely be challenging
to achieve consensus as to what specific subset should be the focus, multilateral
and regional negotiations on fisheries subsidies could be used as an example of
how to distinguish between different types of measures in this regard.187
Prohibitions could be tailored to meet specific needs and provide for special
and differential treatment (eg exempting LDCs or linking to provisions on
technical assistance and capacity-building).188 The prohibition could also apply
to subsidies above a quantified limit, whilst exemptions could be made for
countries that can prove subsidies are used to achieve certain socio-economic
benefits (eg targeting low-income communities).189 Moreover, the prohibition
could be phased in gradually for some or all countries.190 Even if limited in
scope, a prohibition could provide a strong signal, backed by the WTO’s dispute
settlement system, pushing countries to phase out this specific support.191
Alternatively, “adverse effects” in ASCM, art 5 could be redefined to include
harm to the human and natural environment, without regard to whether there
is harm to competitors,192 thus making fossil fuel subsidies more able to be
challenged as “actionable”.

184 Gary Horlick “The WTO subsidies agreement can be changed to discipline fossil fuel
subsidies” (22 August 2018) International Centre for Trade and Sustainable Development
<https://www.ictsd.org/opinion/the-wto-subsidies-agreement-can-be-changed-to-discipline-
fossil-fuel-subsidies>.
185 Horlick, above n 184.
187 For instance, the CPTPP, above n 27, targets fisheries subsidies that contribute to
overfishing and overcapacity, and illegal, unreported and unregulated fishing (art 20.16.2).
It seeks to link subsidy prohibitions to “negative effects” (based on “the best scientific
evidence available”) on overfishing (art 20.16.2 and 20.16.3).
189 At 64.
190 Bacchus, above n 38.
Legal reform would raise considerable challenges to achieving a negotiating

mandate and achieving sufficient consensus among Members to give it effect,
and would likely be a lengthy process. Das and others suggest that the prospects
for an amendment are therefore low in the short to medium term, although they
may improve in the long term.193 As Gary Horlick argues:194
While reform will require considerable care, the most important prerequisite
for curbing fossil fuel subsidies using the WTO framework is the recognition
that climate change is too important to be held back by the political and
technical intricacies of engaging in a reform of the Agreement on Subsidies
and Countervailing Measures.
4.6 A New WTO Agreement
Commentators have suggested a new WTO Agreement on fossil fuel subsidies,

or energy subsidies more generally.195 Such a new approach could foreseeably
be disciplined based on effects on climate as opposed to trade, in contrast to
the focus of the ACSM.196 A separate agreement (as opposed to amending the
ASCM) could be beneficial in that it would be more far-reaching, enable more
effective disciplines, and limit the risk of opening up other issues and subsidies
within the same discussion.197 It would not necessarily need universality of
obligation, instead a plurilateral agreement would likely be most efficient and
effective if the major subsidising states were to agree to adhere to it.198 The
prospects however depend on these states getting on board.
At the most ambitious end of the spectrum, WTO Members could consider
negotiating a full sectoral trade agreement on energy subsidy reform. Such
an agreement could cover clean and fossil fuel subsidies, which could serve
to facilitate trade in, and scale-up of, clean energy and include provisions to
explicitly restrict the use of fossil fuel subsidies.199 “The advantage of this
approach is that it would address a broad range of trade issues related to energy
simultaneously, and would thereby offer attractive benefits to parties in terms of
enhanced market access for clean energy technologies, increased policy space,
and a clarification of rights and obligations.”200

195 Trachtman, above n 6; Steenblik, Sauvage and Timiliotis, above n 71, at 131.
196 Trachtman, above n 6; ICTSD, above n 179, at 6.
198 ICTSD, above n 179, at 6–7.
199 At 7.
200 At 7.
Any new discipline is likely to be a drawn-out process and there would be

multiple challenges. Even if plurilateral negotiations are launched, it may be
hard to reach an agreement, as ongoing negotiations among seemingly like-
minded countries on the Environmental Goods Agreement and the Trade in
Services Agreement show.201 Any new agreement on fossil fuel subsidies seems
likely in the medium to long term at best.202
4.7 Trade Agreements
It is suggested that RTAs could play a crucial role in the interim and/or along
side progress within the WTO.203 RTAs can be more detailed and more elaborate
in setting common rules for trade-related climate measures in general, in
particular by aligning standards and regulations between parties.204 This could
foreseeably include promoting collaboration on fossil fuel subsidy reform in
that governments could include specific reference to reform, or to technical
assistance and capacity-building measures targeted at reform, as has been done
in the EU-Singapore Free Trade Agreement.205 In doing so, countries could drive
progress in reducing fossil fuel subsidies at bilateral and plurilateral levels.206
As Verkuijl and others set out, pursuing options through the WTO or through
regional or plurilateral agreements can be done in parallel — rules, policies
and practices at the regional level could influence multilateral discussions
and vice versa, “allowing for a dynamic of multi-level reinforcement”.207 The
potential for impact is greatest with regard to mega-regional agreements due to
the number of parties involved (although harder to achieve consensus for the
same reason).
Overall, the political feasibility of including climate-related provisions in
new or existing RTAs will vary between countries. Including binding climate-
related provisions in new agreements is likely to be challenging but Das and
others suggest that the prospects would increase if the provisions are voluntary
in nature.208 Meanwhile, the review and renegotiation of existing RTAs for
climate purposes is likely to be more difficult to accomplish politically, at least
in the short term.209

202 At 46.
203 Steenblik, Sauvage and Timiliotis, above n 71, at 132.
205 ICTSD, above n 179, at 5.
206 At 5.
209 At 48.
5. DRIVERS OF SUCCESSFUL SUBSIDIES REFORM
Looking to previous subsidy reform processes, Markus Gehring has

extracted key drivers he argues are necessary to build momentum and make a
breakthrough (at the WTO or other setting) to phase out fossil fuel subsidies.
These are briefly outlined below:210
(1) It is vital that there is leadership by key countries (ie major traders, emitters,
subsidy providers) willing to negotiate for the issue and provide high-level
political endorsement in the WTO itself, as well as continued engagement
by international organisations, civil society and leading research institutions
which all together may provide the basis for coalitions — eg the FFFSR.
Such recognition needs to be followed up by concrete actions to build
support and momentum.
(2) Academic, scientific and policy background analysis is necessary to show
the scale of subsidies, scope and damaging contribution to climate change,
and thus a vital foundation for any negotiations. Analysis has begun (eg by
the IPCC, IMF, OECD and World Bank) but more data and analysis is
necessary especially at the national and subnational levels.
(3) Engagement by civil society and the private sector is fundamental for
research, awareness-raising, education and action.
(4) There must be viable and accessible alternatives to fossil fuels in order to
enable the energy shift we require. There have been positive changes in
recent years with increasing investment in, and development of, sustain
able energy sources with a view to transitioning to a low-carbon economy
globally. If energy from sustainable sources is to overtake that reliant
on fossil fuels then it will need to be competitive in price to fossil fuels.
Removing the subsidies will free up more funds to be diverted to the
development of new clean energy sources.
(5) Finally, there is a lot to be learnt from subsidy reform processes in other
regimes. In each case, the principles and processes to identify subsidies
that are harmful to social, environmental and economic objectives can be
transferred from one regime to the other. Gehring argues that the concept
of sustainable development provides the theoretical framework necessary
to translate experiences from one regime to another.
210 Markus Gehring From Fisheries Subsidies to Energy Reform under International Trade
Law (Centre for International Governance Innovation, CIGI Papers No 188, September
2018).
6. CONCLUSION
International trade can make a significant contribution to the phase-out of

fossil fuel subsidies. The WTO is important as a central force with a wide
membership and capacity to provide economic incentives that major subsidising
states will require in order to take action. It is therefore a promising entity to
promote cooperation between Members required to address this truly global
problem. In the first instance the WTO has an important role to play to help
improve understanding and transparency of existing fossil fuel subsidies and
build political momentum for reform. However, as the current ASCM appears
ill-equipped to effectively discipline fossil fuel subsidies, it is likely it will take
legal reform in the longer term in order to effect meaningful change. Whilst
such ambitious steps would likely be politically challenging, the gravity and
urgency of climate change as a global crisis necessitates the international
community to overcome these challenges and cooperate in order to take rapid
action. It is likely that it will require a coordinated approach by the WTO and
international trade agreements, and work by other international (non-trade)
organisations (ie UNFCCC, G20). These organisations will necessarily be
informed by data and analysis by intergovernmental and non-governmental
organisations, and engagement by civil society and the private sector to drive
action.
Previous reform processes could offer a useful precedent, although the
stakes are higher in the case of fossil fuels given the size of subsidies that
almost every country provides to some extent.211 Ultimately it starts with
leadership by key countries and we are seeing promising steps in this regard
with calls for change. Concrete action must follow rapidly if we are to have a
chance to mitigate and adapt to the potentially catastrophic effects of climate
change.
211 Droege and others, above n 25, at 256.

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65

The Potential Role of the

As an international community we are currently falling well short of

2. THE RELATIONSHIP BETWEEN THE

2.1 The Climate Regime under the Paris Agreement

The United Nations Framework Convention on Climate Change (UNFCCC)

5 Intergovernmental Panel on Climate Change Climate Change 2014: Synthesis Report —

gas concentrations in the atmosphere at a level that would prevent dangerous

2.2 The International Trade Regime

2.2.1 The WTO

15 Marrakesh Agreement Establishing the World Trade Organization (concluded 15 April

relationship between trade and the environment in order to promote sustainable

2.2.2 Trade agreements

Alongside the WTO system is an increasing number of bilateral and regional

24 See WTO <https://www.wto.org/english/tratop_e/envir_e/wrk_committee_e.htm>.

regional agreements — for example, Chapter 20 of the CPTPP is dedicated to

2.3 Should Trade be used to Support Climate Goals?

The UN climate regime takes somewhat of an “arms-length” stance with

The Parties should cooperate to promote a supportive and open international

As such, the UNFCCC effectively refers parties to existing trade law by

31 CPTPP, above n 27, art 20.3.

problem and requires a global response to which the cooperation of other

The reference to sustainable development and the need to protect and

The relationship between international trade and climate change is com­

3. FOSSIL FUEL SUBSIDIES

3.1 Defining Fossil Fuel Subsidies

There is no universal definition of what constitutes a fossil fuel subsidy

43 Das and others, above n 8, at 10.

IMF includes consumption-related externalities in its definition of “post-tax

3.2 The Importance of Phasing Out Fossil Fuel Subsidies

fuel subsidies have huge environmental, economic and social implications.

3.3 International Support for Fossil Fuel Subsidy Reform

The 2009 G20 Pittsburgh Communiqué called on its members to “rationalize

Rationalize inefficient fossil-fuel subsidies that encourage wasteful

68 Group of 20 “G20 Leaders Statement: The Pittsburgh Summit” (Pittsburgh, 24–25

endorsed by other countries outside the group (including G7 members Canada,

3.4.1 WTO agreements

(1) The policy must be a “financial contribution” or “any form of income or

If a measure successfully meets the above criteria, it is a “subsidy” to which the

86 ASCM, above n 46, art 1.1(a).

Specificity Requirement — given that the benefits of such subsidies generally

98 Asmelash, above n 61, at 281.

106 Asmelash, above n 61, at 282–284.

3.4.3 Trade agreements

115 Asmelash, above n 61, at 284.

4. HOW CAN THE INTERNATIONAL TRADE REGIME

Fossil fuels are traded extensively internationally, therefore national subsidy

120 Steenblik, Sauvage and Timiliotis, above n 71, at 134.

4.1 Enhance Transparency

It has been suggested that in order to improve notifications, Members could

126 Trachtman, above n 6, at 18.

Another option already possible within existing rules is counter-notification.

4.1.3 Trade Policy Review Mechanism

4.1.4 Strengthen ASCM notification requirements

Another potential avenue is to strengthen the enforceability of existing

should be notified (beyond those meeting the definition of arts 1 to 2) and

4.2 Adopt a Political Declaration

Another option is for WTO Members to adopt a political declaration. Such

150 At 40–41; Verkuijl and others, above n 48, at 62.

its interpretation” under the Vienna Convention on the Law of Treaties.159 As

The relationship between international trade and climate change is com