About the Coalition
Finance Ministers hold the keys to accelerating climate action. They know most clearly the risks posed by climate change, and recognize how taking action could unlock trillions in investments and create millions of jobs through 2030.
The Coalition of Finance Ministers for Climate Action brings together fiscal and economic policymakers from over 90 countries in leading the global climate response and in securing a just transition towards low-carbon resilient development.
Learn MoreThe Helsinki Principles
The six Helsinki Principles guide the Coalition's commitment to #ClimateAction
Helsinki Principle 1: Align Policies with the Paris Agreement
Helsinki Principle 2: Share Experiences & Expertise
Helsinki Principle 3: Promote Carbon Pricing Measures
Helsinki Principle 4: Mainstream Climate in Economic Policies
Helsinki Principle 5: Mobilize Climate Finance
Helsinki Principle 6: Engage in NDC Development
Workstream: Adaptation
Workstream: Green and Just Transition
Workstream: Nature
95
Member countries
43%
of global GHG emissions
69%
of Global GDP
Member Countries
Events
View recent and upcoming Coalition events, including workshops, webinars and meetings
October 23, 2024
12th Ministerial Meeting
Countries’ opportunities and challenges for reforming fossil fuel subsidy policies in the era of climate action
By Steven van Weyenberg, Minister of Finance (The Netherlands), Juan Carlos Vega, Minister of Finance (Ecuador), Jeppe Bruus Christensen, Minister for Taxation (Denmark) and Marcela Bensión, Ministry of Economy and Finance (Uruguay)
Through the Coalition of Finance Ministers for Climate Action, a diverse group of finance ministers and senior officials came together to exchange views and experiences on the opportunities and challenges countries face in transitioning away from carbon-intensive fuels. One key barrier to reform is the existence and persistence of fossil fuel subsidies. Their prevalence and pervasiveness mean that the production costs of these carbon-emitting fuels are systematically not being reflected in fuel prices, that is, we have been making it significantly cheaper to consume fossil fuels than they cost to produce, even before environmental and climate costs are considered.
Jointly addressing the topic resulted in a rich and candid exchange of experiences between high-level representatives from the Netherlands, Ecuador, Uruguay and Denmark. In this article, they share some key insights with the wider public.
The excessive cost of fossil fuel subsidies
Fossil fuel consumption is the largest contributor to global climate change, responsible for over 70% of greenhouse gas emissions. According to IMF Deputy Director of Fiscal Affairs Ruud de Mooij, “despite the clear negative environmental and fiscal impacts, most countries around the world continue to subsidize fossil fuel consumption. Between 2020 and 2022, total explicit fossil fuel subsidies across 177 countries more than doubled to USD 1.3 trillion, prompted in large part by surges in global energy prices after the COVID-19 pandemic. That is approximately 1.3% of global GDP. If we add implicit subsidies, reflecting the external costs such as global warming, pollution and damage to public health, we reach a staggering USD 7 trillion, or 7% of global GDP.”
Minister Vega from Ecuador highlighted the fiscal costs of fossil fuel subsidies: “Our subsidy bill amounted to over 3% of GDP in 2023. This is the equivalent of our total health spending, 70% of our spending on education, and three times the amount of spending on cash transfers to the poor.”
Measurement is the first step
A sound methodology for measuring both explicit and implicit subsidies provides the foundation for understanding the extent of the issue and the price adjustment that is needed. Quantification and publication of data on subsidy expenditure can also help raise public awareness of the size of the government subsidy bill. However, the methodology really matters. Minister van Weyenberg identified the Netherlands’ challenges with subsidy measurement: “We carried out three measurements between 2018 and 2023, with different methodologies, which yielded widely varying figures. The outcomes ranged from EUR 4 billion for the first one, to almost EUR 46 billion for the most recent and extensive one. This was much higher than we initially expected and illustrates the impact of the specific methodology that is used. But good measurement is key: if you don’t know how big the issue is, it is hard to build a case for reform. The Coalition of Finance Ministers for Climate Action is uniquely placed to help promote comparability across countries.”
Prepare the public for reform
Subsidy reforms are likely to come under significant public scrutiny, even if great efforts are taken to explain the benefits of the reform. Targeting or reducing a subsidy normally means increasing prices for some. Those who will face higher prices could become very vocal in their opposition of subsidy reforms, especially since certain benefits of reform are diffuse and many will only become evident over a longer time horizon. This dynamic poses a real challenge for policy makers. Having experienced multiple episodes of extreme social unrest following its attempts at subsidy removal earlier this decade, Minister Vega shared a key lesson: “Strong public communication of measures and their benefits is important. However, it is no guarantee of success, since the benefits are perceived over longer-term horizons, but the costs are felt immediately.”
A gradual approach to subsidy removal, combined with complementary measures to support vulnerable households and firms can also help to weather both the social and the macroeconomic impact of the reform. Marcela Bensión, Director of Economic Policy at the Ministry of Economy and Finance of Uruguay shared: “In Uruguay, a key determinant of policy success was our phased approach, allowing the government to get buy-in from the public and from businesses.”
Protect the poorest
As explicit subsidies in most countries are provided to all income groups, the benefits of subsidies tend to accrue disproportionately to higher income households as they tend to consume more in absolute terms. To protect vulnerable consumers, a portion of the revenues previously directed towards subsidies could be used to compensate low-income households for higher energy prices through targeted cash transfers. If needed, support could also initially be provided to energy-intensive firms to help ease the transition.
Marcela Bensión explained how the authorities in Uruguay have sought to protect low-income households when adjusting fuel prices. “Rather than direct support, we have focused on bus ticket prices. Since our buses mostly run on gasoline, bus ticket prices have been kept low, cross-subsidized by other fuels. Recently, we have put in place new incentives to substitute fossil-based buses with those based on clean technologies, something that will gradually reduce the level of subsidies.”
However, this is not always easy. Ecuador’s Minister Vega pointed out that “understanding potential impacts in households and firms is critical. One should be very mindful of the interconnectedness of value chains and the relative weight of fossil fuels. Strong analytical work is necessary to anticipate those effects and find ways to compensate people who need to weather new conditions. Those at the top of the income distribution do not need compensation but groups in the middle or poorer households do.”
Beware of cross-border spillover effects
Minister Vega from Ecuador also spoke of the impact on demand for smuggled fuel when price differentials exist across borders. “In Ecuador, fuel prices are up to ten times lower than in neighboring countries, with the resulting smuggling of fuel to other countries further adding to the government’s subsidy expenditure”. As Minister Bruus Christensen of Denmark explained, this is also an issue in Europe: “The spillover effects to neighboring countries depend heavily on the differences in the price of petrol and diesel between countries. For instance, Sweden reduced their tax on diesel and biofuels requirements in 2024, which moved a significant amount of fuel demand from Denmark to Sweden.” Regional and international coordination would be very useful in solving these collective action problems, another important area the Coalition of Finance Ministers for Climate Action can contribute to.
In the same vein, a number of fossil fuel subsidies are locked in through international treaties, and as such cannot be phased out by any individual country. Minister Van Weyenberg explained the situation in the Netherlands. “During our last inventory, we found that around half of our fossil fuel subsidies – around EUR 20 billion – are enshrined in international treaties, such as for the international aviation sector. Joint international action is required to abolish them.”
Fossil fuel pricing: what’s next?
Getting the pricing of fossil fuel products right is critical to meeting the Nationally Determined Contributions (countries’ national climate plans) under the UN Paris Climate Agreement. The distortion of price signals resulting from both implicit and explicit subsidies can promote inefficient allocation of an economy’s resources. This encourages overconsumption of fossil fuels at artificially low prices, and discourages investment in cleaner alternative sources of energy, ultimately hindering growth and increasing global warming and air pollution.
And while challenging, removal of explicit subsidies is only the first step – this alone will not allow us to reach global climate goals. The issue of implicit subsidies is next on the agenda. Only 47 countries have some form of carbon pricing in place, covering 25% of global GHG emissions at a carbon price of around $22/ton of CO2e. As of November 2023, 50% of global emissions remain explicitly subsidized. In contrast, measures equivalent to a global carbon price of at least USD 85 on almost all global emissions would be needed to achieve 2°C goals, and higher for 1.5°C.
Finance ministries play a central role in setting the right price for fossil fuel products. They can repurpose subsidies and additional revenues to generate much needed fiscal space for green investment and social spending to ensure an orderly and just energy transition. Subsidy reform and carbon pricing can be politically and socially unpopular. It is important to take concerns seriously, as the reforms are critical to achieving global climate goals. The experiences of these four countries suggest that correctly pricing fossil fuel products needs to be part of comprehensive policy package that is socially equitable, politically acceptable, fiscally as well as macroeconomically sound, and well communicated to the public.
The Coalition of Finance Ministers for Climate Action will continue to drive the topic of fossil fuel subsidy reform, including by sharing lessons learned from its member countries, and supporting members to measure, reform and phase-out fossil fuel subsidies. Furthermore, the Coalition will work with member countries and Institutional Partners on the compatibility and comparability of methodologies for the measurement of fossil fuel subsidies, and facilitate peer exchanges on the specific, practical barriers to phase out subsidies and how to overcome them, including in regional and international fora. Finally, the Coalition will also seek to facilitate further dialogue across countries to enable the removal of subsidies enshrined in international treaties, and possible regional coordination of carbon pricing in order to mitigate spillover effects.
Coalition Presents its Work Program for 2024-25
View/Download the 2024-2025 Strategic Work Program
It is the first time the Coalition sets out a Strategic Work Program for two years, to provide a longer, strategic horizon to work towards collectively. The Work Program has been developed through an inclusive and consultative process including a member survey, various member consultation calls, discussions during the annual in-person deputies meeting, and has been adopted by the members of the Coalition in March 2024.
In 2024-2025, the Coalition will build on previously achieved results and building blocks, make continuous improvements based on member feedback, to further increase the Coalition’s impact – both politically and on the ground.
This Strategic Work Program now acts as the central document for all key Coalition information.
Joint Call to Action: Finance Ministries are Key to Accelerated Climate Action through Ambitious NDCs
Finance Ministries hold the keys to unlocking the transformative potential of new national climate plans according to global finance leaders and the United Nations*
With escalating climate impacts taking place around the world, we are increasingly facing the devastating consequences of the climate crisis, impacting our economies, livelihoods and ecosystems. The results of the first Global Stocktake clearly show that the world is not on track to achieve the critical climate goals as set out in the Paris Agreement. We must therefore urgently curb greenhouse gas emissions, take ambitious adaptation measures, and direct economic development towards more sustainable pathways.
Over the next year, countries have the opportunity to turn the tide of the climate crisis through the submission of their new Nationally Determined Contributions (NDCs), countries’ national climate plans under the Paris Agreement framework, to the United Nations Climate Change Secretariat in 2025. As we are presented with this unique moment to define the 2035 climate targets, the next round of NDCs must be ambitious, follow a whole-of-society approach, be informed by the Global Stocktake from COP28, and re-align global efforts with the goals set out in the Paris Climate Agreement. The window of opportunity is rapidly closing, and we cannot afford to miss it. Therefore, all stakeholders need to step up, including the finance community with Finance Ministers as important champions.
Well-designed NDCs will not just enhance climate resilience and help countries protect their citizens from the worst effects of climate change. They provide a strategic avenue for countries to improve the livelihoods of people, families and local communities. A low-carbon economy can contribute to eradicate poverty and eliminate hunger while promoting good health and wellbeing. NDCs provide significant benefits and opportunities to countries and to the economic and fiscal objectives of Finance Ministries. For future generations, the social, environmental, and financial cost of delayed inaction will far outweigh the costs of bold actions required today.
Finance Ministries hold the keys to unlocking the potential of NDCs, thereby safeguarding and improving the wellbeing of their citizens. At the heart of successful NDCs, lie robust financing and investment plans. As key coordinators of the economic, fiscal and financial policies, Finance Ministries have a critical role to play in designing these plans to ensure that NDCs are ambitious, realistic, and economically viable. Finance Ministries are crucial in mobilizing public and private financial resources, allocating investment and expenditures, providing guidance on effective costing practices, developing sound macroeconomic forecasts, designing measures to mitigate potentially adverse distributional impacts of climate policies, and aligning NDC planning with national development planning and budget cycle.
As a Coalition of Finance Ministers for Climate Action with over 90 members from all regions of the world facing distinct but shared challenges, we recently launched a dedicated NDC support initiative together with the NDC Partnership at COP28. This support initiative assists Finance Ministries in developing, financing, and implementing NDCs for strengthened climate action, benefiting from the support, experience and expertise of the Partnership’s over 220 members.
With the 2025 NDC deadline rapidly approaching, we are calling on Finance Ministries to rise to the occasion by proactively engaging with the development of their country’s new NDCs. Finance Ministries can particularly focus on their pivotal role in steering climate action through the strategic elimination of harmful financial incentives for carbon-intensive activities, mobilizing fiscal space, attracting private sector investment, and enhancing coordination with other government ministries. The Coalition network stands ready to support this effort, including through strengthening climate capacities of Finance Ministries, sharing knowledge, best practices and country experiences, as well as connecting members’ needs with Institutional Partners.
We are also calling on Ministries of Environment and Climate Change, generally the leading coordinators for NDCs, to proactively engage Finance Ministries from an early stage to develop robust NDC financing plans and support their implementation. We look forward to promoting a joint dialogue to keep the drumbeat going for concerted climate action on the road to 2025.
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**At the 11th Ministerial Meeting of the Coalition of Finance Ministers for Climate Action on 17 April 2024 in Washington DC, building on the momentum generated by its fifth anniversary, the Co-Chairs of the Coalition of Finance Ministers for Climate Action (Minister of Finance of the Netherlands, Steven van Weyenberg, and Minister of Finance of Indonesia, Sri Mulyani Indrawati), the Co-Chairs of the NDC Partnership (Jeanine Munyeshuli, Minister of Environment of Rwanda, Jeanne d’Arc Mujawamariya, Dan Jørgensen, and Minister of Finance of Denmark, Nicolai Wammen), and high-level representatives of the UN system (UNFCCC Executive Secretary Simon Stiell and UNDP Administrator Achim Steiner) made a joint call to actively involve and engage as Finance Ministries in developing, implementing and financing the new Nationally Determined Contributions (NDCs) under the Paris Agreement ahead of the 2025 submission deadline at COP30.
Global Leaders Call for Stronger Engagement from Ministries of Finance to Raise Climate Ambition and Accelerate Climate Action
Washington DC, United States, 17 April 2024 – In a vital push for climate action, global finance and environmental leaders alongside the UN, issued a Call to Action today to strengthen the engagement of Ministries of Finance in developing, implementing, and financing new national climate plans, or Nationally Determined Contributions (NDCs), due in 2025.
Marking the five-year anniversary of the Coalition of Finance Ministers for Climate Action, the Call to Action emphasizes that Finance Ministries hold the keys to unlocking the transformative potential of new national climate plans. With support from Finance Ministries, new national climate plans can be investable plans - that safeguard and improve the livelihoods of people, families and local communities across the board.
Minister of Finance of Indonesia and Co-Chair of the Coalition of Finance Ministers for Climate Action, Sri Mulyani Indrawati said: “Ministries of Finance have a critical role to play in ensuring that Nationally Determined Contributions (NDCs) incorporate a broad set of economic considerations and advance socioeconomic well-being. However, 73% of coalition Finance Ministries are not currently involved in development of their country's NDCs. Therefore, we have convened today in Washington DC for the 11th Ministerial Meeting of the Coalition of Finance Ministers for Climate Action to advance the involvement of Ministries of Finance in the design and implementation of NDCs. By playing a more strategic role in the NDC process, we can integrate financial solutions into national pathways to a low-carbon future and accelerate climate action. The Coalition network stands ready to support these efforts.”
NDC Partnership Co-Chair and Minister of Development Cooperation and Global Climate Policy of the Kingdom of Denmark Dan Jørgensen said: “NDCs are crucial to enhancing climate resilience and helping the citizens of countries around the world adapt to the worst effects of climate change. Strong engagement by the Ministries of Finance, and the collaboration between the Coalition of Finance Ministers and the NDC Partnership, which Denmark and Rwanda are co-chairing, is instrumental in the formulation and execution of ambitious NDCs aligned with national development priorities.”
The Co-Chair of the Coalition of Finance Ministers for Climate Action Minister of Finance of the Netherlands Steven van Weyenberg added: “We have no time to spare when it comes to taking climate action. It is imperative that Finance Ministries actively contribute to developing and financing NDCs. For future generations, the social, environmental, and financial cost of delayed inaction will far outweigh the costs of bold actions required today.”
NDC Partnership Co-Chair and Minister of Environment of the Republic of Rwanda Dr. Jeanne d'Arc Mujawamariya: “Today’s Call to Action highlights the urgent need to involve Ministries of Finance in the development and implementation of NDCs that reaffirm the spirit of the Paris Agreement. As a Co-Chair of the NDC Partnership, we stand committed to strengthening the engagement of Ministries of Finance in all aspects of NDC development and implementation to ensure that we respond to the outcomes of the Global Stocktake with the urgency this moment requires.”
The Danish Minister of Finance, Nicolai Wammen, said: “Ministers of Finance need to step up and lead on climate action. The green transition requires historic investments and major structural changes to the economy. We need strong cooperation within governments on planning and implementation of the NDC’s. Otherwise we will not reach the finish line.”
The Call to Action is rooted in the urgent findings of the 2023 Global Stocktake, which warns that the world is significantly off track in meeting the goals of the Paris Agreement and urgent action is needed to combat the growing threats posed by climate change. According to the Call, through the submission of new NDCs to the United Nations Framework Convention on Climate Change (UNFCCC) in 2025, countries now have the opportunity to ‘turn the tide of the climate crisis’.
Launched at the 11th Ministerial Meeting of the Coalition hosted by the World Bank and the International Monetary Fund, the Joint Call to Action is presented by both the Co-Chairs of the Coalition of Finance Ministers for Climate Action and the NDC Partnership, alongside the United Nations Framework Convention on Climate Change and United Nations Development Programme.
To learn more, read the full Joint Call to Action here.
For Media Inquiries:
NDC Partnership Communications Manager, Caity Pinkard: caitlin.pinkard@ndcpartnership.org
About the Coalition for Finance Ministers for Climate Action
The Coalition of Finance Ministers for Climate Action was created in 2019 and now has 92 members, including all the G7 countries, and 27 Institutional Partners. It brings together economic, fiscal and financial economic policymakers in leading the global climate response and in securing a just transition towards low-carbon resilient development. Together, the Coalition accounts for 40% of global CO2 emissions and a substantial 70% of global GDP. All members of the Coalition have committed to the six foundational Helsinki Principles, which require national action on climate change, particularly through fiscal and financial policies. The Coalition is currently co-chaired by the finance ministers of the Netherlands and Indonesia, the initiators of this Call to Action.
About the NDC Partnership
The NDC Partnership is a global coalition, bringing together more than 200 members, including more than 120 countries, developed and developing, and nearly 100 institutions to deliver on ambitious climate action that helps achieve the Paris Agreement and drive sustainable development. Governments identify their NDC implementation priorities and the type of support that is needed to translate them into actionable policies and programs. Based on these requests, the membership offers a tailored package of expertise, technical assistance, and funding. This collaborative response provides developing countries with efficient access to a wide range of resources to adapt to and mitigate climate change and foster more equitable and sustainable development.