Options for Taking Forward a Potential Voluntary Standstill Commitment on Inefficient Fossil Fuel Subsidies

As specified in the joint statement made by the Asia-Pacific Economic Cooperation (APEC) Ministers Responsible for Trade on 5 June 2021, “market-distorting subsidies undermine a level-playing field.” The Ministers also noted increasing concern about subsidies that have a negative environmental impact. APEC member economies made a commitment in 2009 to rationalize and phase out fossil fuel subsidies (FFSs) that encourage wasteful consumption; subsequent restatements of this commitment by APEC member economies added the qualifier “inefficient” in front of FFSs. Building on this background, APEC Ministers Responsible for Trade tasked APEC officials to explore “options, for those members that are in a position to do so, to undertake a potential voluntary standstill on inefficient fossil fuel subsidies.” This study is intended to support the exploration of standstill options, including a review of existing standstill commitments, identification of potential options for a standstill on inefficient FFSs, considerations for ensuring that a standstill process is just, and the potential implications of a standstill on APEC member economies.

Standstills have an international track record of use in trade in particular, but also in other forums, including environmental and sustainable development agreements. A standstill on inefficient subsidies has the benefit of creating a voluntary agreement amongst APEC economies in a position to do so to ensure that inefficient subsidies do not increase and exacerbate any adverse impacts. A voluntary standstill can also complement existing individual efforts that APEC economies are undertaking to support inefficient fossil fuel subsidy reform.

Based on the research conducted as well as feedback from a workshop held on 19 August 2021, the following options could be explored to undertake a potential voluntary standstill on inefficient FFSs for APEC member economies that are in a position to do so:

a) Adopt an inventory-based voluntary standstill commitment: In this case, a standstill would be based on an inventory (list) of an economy’s inefficient FFSs. Economies that are in a position to do so would commit to not adding any new items to the inventory. Further, a voluntary commitment could be made that any inefficient FFSs within the inventory that already had a specified end date would not be extended beyond that expiration date.

b) Adopt a value-based voluntary standstill commitment: In this case, a standstill would prohibit the financial value of inefficient FFSs from increasing compared to a set baseline (e.g., a particular year or an average over a period).

c) Adopt a hybrid standstill commitment: This could be inventory-based for certain categories of inefficient FFSs and value-based for others. Noting the weaknesses of the purely inventory-based and value-based approaches, one option would be to use an inventory-based approach for inefficient FFS categories like direct transfer of funds; tax expenditure, other revenue foregone and under-pricing of goods and services; and transfer of risk. A value-based approach could be used for the induced transfer (price support) category.