From boosting financial gains to reducing CO2 emissions, there are clear benefits from removing inefficient fossil fuel consumption subsidies. BSG Postdoctoral Research Fellow Dr Thomas Hale and Peter Ogden, Senior Fellow and Director of International Energy and Climate Policy at the Center for American Progress, explore a new policy tool that can offer countries the financial leverage they need to tackle the subsidy reform.
The subsidy phase-out and reform catalyst, or SPARC, bonds are a new financial instrument that can succeed where other efforts – for example ‘green bonds’ – have failed. SPARC bonds are linked directly to reductions in fossil fuels and could be backed by the World Bank and the Green Climate Fund. The authors say the model is “analogous to the financing model that is widely used by energy service companies” in which the company invests upfront to upgrade the customer’s home and then is paid back over a fixed period using part of the savings from the customer’s energy bill.
As the authors explain, “current levels of public and private investment cover only a fraction of what is needed to decarbonize the economy, expand energy access, and adapt to unavoidable climatic changes. Yet, perversely, countries spend more on fossil-fuel subsidies that drive climate change than they spend trying to combat it.”
With world leaders urging to phase-out fossil-fuels subsidies and 2015 being the year for both the United Nations Climate Change Conference (UNCCC) in Paris and the Millennium Development Goals deadline (and subsequent new goals setting), a change is becoming increasingly urgent. Will SPARC bonds add a new string to the bow of reformers?