ABSTRACT
This chapter provides a comprehensive overview of the state-of-the-art on fossil fuel subsidies. It discusses common definitions, provides quantitative estimates, and presents evidence for key arguments in favour of subsidy reform. Moreover, it discusses the main drivers and barriers for reform, including the role of (low) oil prices and political economy challenges. Commitments to subsidy reform by the international community are reviewed, as well as the progress at the country level. While fossil fuel subsidy reform indeed plays a critical role in climate policy, experience shows that the rationale for such reforms is determined in a complex context of political economy challenges, macro-economic, fiscal and social factors, and external drivers such as energy prices. The chapter synthesises evidence from a series of case studies of past reforms, and summarises focus areas for the design of effective reforms. It is emphasised that subsidy reforms must not only be designed to yield fiscal relief, but should be regarded as a prerequisite and contribution to achieving long-term sustainable development objectives, as set out by the Sustainable Development Goals. Areas for future research are identified.
