By Natalie Jones, IISD
In 2023, government support for fossil fuels reached at least USD 1.5 trillion. This comprised USD 1.1 trillion in fossil fuel subsidies, USD 368 billion in State-owned enterprise investment in fossil fuels, and USD 29 billion in international public finance for fossil fuels.
Fossil fuel subsidies are not only bad for the climate, since they artificially lower fossil fuel prices encouraging wasteful consumption, but they also endanger energy security, divert investment from renewables and energy efficiency, and lock in carbon-intensive energy systems for the coming decades. What’s more, fossil fuel consumption subsidies are regressive, mainly benefiting wealthy individuals who use more energy. Phasing out fossil fuel subsidies frees up fiscal space to redirect funds to targeted social protection and climate action.
Countries have made several commitments to phasing out fossil fuel subsidies, including under the UNFCCC, the Group of 20 (G20), the Group of 7 (G7), Asia-Pacific Economic Cooperation (APEC), and SDG 12 (responsible consumption and production), but so far have not lived up to those pledges.
The International Court of Justice (ICJ) Advisory Opinion (AO) on Obligations of States in Respect of Climate Change is clear that ending fossil fuel subsidies is not just a matter of good practice, but a legal imperative.
The ICJ’s first significant finding in this regard was that fossil fuel subsidies are included in the scope of conduct that can potentially breach international law. International legal obligations relating to climate change don’t only cover conduct that itself directly results in greenhouse gas (GHG) emissions (such as fossil fuel combustion), but can also cover the “production, licensing and subsidizing” of fossil fuels.
The ICJ went even further on this point, specifically stating that the provision of fossil fuel subsidies “may constitute an internationally wrongful act which is attributable to that State.” In other words, if a government provides fossil fuel subsidies, it may, by doing so, breach international law.
Subsidies are not the only source of public support for fossil fuels. The ICJ’s Advisory Opinion did not mention other sources of public financial flows for fossil fuels, such as international public finance and State-owned enterprise investments. However, it is likely that the ICJ’s pronouncements on fossil fuel subsidies can be applied by analogy to these other supplies of public funds. Other sources of public finance for fossil fuels are no less harmful to the climate than fossil fuel subsidies – and are also under the direct control of States.
A State’s capabilities matter when it comes to the standard to which they are to be held when it comes to phasing out public finance for fossil fuels. According to the ICJ, “the capabilities of States are a key factor… for the determination of the appropriate standard of due diligence in a particular situation.” However, even a State with lesser capabilities or insufficient resources is required “to take all the means at its disposal to protect the climate system in accordance with its capabilities and available resources.”
If a State is found to have breached its international legal obligations by providing fossil fuel subsidies or other forms of public finance for fossil fuels, the ICJ held that it could be liable for “performance” and “cessation.” That is, a State must stop the internationally wrongful act, e.g. subsidizing fossil fuels, and adhere to its obligations. In addition, if the breach can be causally linked to particular climate harm, a State can be held liable for reparations, including restitution (restoring the situation to the state it was in before the harm occurred), compensation, or satisfaction (e.g., formal apologies).
The door is now open to international litigation against States with significant public financial flows to fossil fuels. According to the International Institute for Sustainable Development (IISD) and Organisation for Economic Co-operation and Development’s (OECD) Fossil Fuel Subsidy Tracker, the countries that have accepted the compulsory jurisdiction of the ICJ account for 49% of the total volume of fossil fuel subsidies in 2023. These countries face vastly increased international legal risk, especially considering that any country can bring a case against a fossil-fuel-subsidizing nation at the ICJ since the Court found that climate change obligations are obligations erga omnes, meaning that all States have an interest in compliance. The decision will also trickle down to domestic courts, leading to a likely increase in domestic litigation against States providing public finance to fossil fuels.
The good news is that it is entirely possible to phase out fossil fuel subsidies in a way that protects the most vulnerable. Countries could join the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS), which is a supportive network through which governments can receive assistance to formulate national subsidy inventories and phase-out plans. They could also join the Clean Energy Transition Partnership (CETP), whose members have committed to end their international public finance for fossil fuels and have already cut such finance by up to 78% in 2024.
These communities of practice show that public financial flows for fossil fuels can be phased out. The only question is the political will to do so. The ICJ’s Advisory Opinion seems set to boost public and legal pressure on governments around the world, which can only increase political will. In a world rapidly surpassing the 1.5°C temperature limit, phasing out public finance to fossil fuels is more urgent than ever.
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This Guest Article is part of a project that seeks to raise awareness and build momentum and knowledge around the ICJ advisory opinion on obligations of States in respect of climate change and to promote a better understanding of the implications of the advisory opinion among sustainable development decision makers.