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Trade in fossil fuels, especially coal and natural gas, would be reduced, but these fuels account for a relatively small segment of total world trade and would be compensated, at least in the medium term, by an expansion of trade in energy-intensive goods. The removal of fossil-fuel subsidies in non-OECD countries would have almost no impact on the total trade volumes at the world level although it would generate compositional changes both across traded goods and services and trading areas. Finally, though removing these subsidies qualifies as being a ―win-win‖ option at the global level in terms of environmental and economic benefits, this is not true for all countries/regions. It shows that, though removing these subsidies would amount to roughly a seventh of the effort needed to stabilize GHG concentration at a level of 450ppm or below 2☌, the full environmental benefit of this policy option can only be achieved if, in parallel, emissions are also capped in OECD countries. This paper discusses the assumptions, data and both environmental and economic implications of removing these subsidies. This represents almost five times the yearly bilateral aid flows to developing countries as defined by the Official Development Assistance (ODA). IEA estimates indicate that total subsidies to fossil fuel consumption in 37 non-OECD countries in 2008 amounted to USD 557 billions (IEA, OPEC, OECD, World Bank, 2010). This analysis was based on the OECD ENV-Linkages General Equilibrium model and shows that removing fossil fuel subsidies in a number of non-OECD countries could reduce world Greenhouse Gas (GHG) emissions by 10% in 2050 (OECD, 2009).

Quoting a joint analysis made by the OECD and the IEA, G20 Leaders committed in September 2009 to ―rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption‖.

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