OREANDA-NEWS. A mechanism is needed to ensure that fossil fuel subsidy cuts implemented in the lower oil price environment cannot be reversed, IEA executive director Maria van der Hoeven told Argus today.

In the IEA's Energy and Climate Change report, released today, the agency called for a gradual phasing out of fossil fuel subsidies to zero by 2030. This will help achieve a peak in global greenhouse gas (GHG) emissions by 2020, which would help keep global warming below the 2°C limit deemed safe by scientists.

The report is meant to help inform international negotiations towards a binding, post-Kyoto global climate deal that will be agreed in Paris, France, later this year.

The IEA said it is "encouraging" that countries such as India, Indonesia, Malaysia and Thailand are taking advantage of weaker oil prices to lower fossil fuel subsidies, thereby "cutting the incentive for wasteful consumption".

"The question is, what will happen if oil prices recover? I really do hope that by then, there will be a mechanism in place to prevent the coming back of the subsidies as they were before," Van der Hoeven said.

Fossil fuels are now subsidised by around \$550bn/yr, so "you are talking about a lot of money", the IEA executive director said.

This represents an incentive equal to \$115/t of CO2 equivalent (CO2e) on average to consume fossil fuels, compared with an average \$7/t CO2e carbon price, the IEA estimates.

In 2014, emissions trading schemes with an aggregate value of \$26bn covered 11pc, or 3.7bn t, of global energy-related CO2 emissions. By contrast, 13pc, or 4.2bn t, of global energy-related CO2 emissions arose from subsidised fossil fuels.

Despite the negative impact of fossil fuel subsidies and the urgency of curbing climate change, the IEA envisages a complete elimination of the subsidies only at the end of the next decade. This is because some countries have "social difficulties" abolishing the subsidies, IEA chief economist Fatih Birol told Argus today. "But the sooner they are phased out, the better," he said.

The IEA found that 20pc of the world's poorest residents receive just 7pc of fossil fuel subsidies, whereas the top 20pc of earners gain 43pc from the subsidies' value. "So it does not help the poor, it provides additional support for the rich segments of the population," Birol said. He will replace van der Hoeven as the IEA's executive director later this year.

The IEA has been measuring fossil fuel subsidies for more than a decade. In 2013, global fossil fuel consumption subsidies amounted to \$548bn, over four times the value of subsidies to renewable energy and more than four times the amount invested globally in improving energy efficiency, according to the IEA's latest estimates.

In 2009, when the G20 group of countries first committed to phase out fossil fuel subsidies, they amounted to \$312bn/yr. Phasing out fossil fuel subsidies will again be a key topic at the G20 meeting this year, according to Birol.