OECD Companion to the Inventory of Support Measures for Fossil Fuels 2021:Designing reform of support for fossil fuels: a methodology for a robust sequential approach in OECD and G20 countries

Chapter 2 proposes a methodology for a sequential approach to designing fossil-fuel subsidy reforms in OECD and G20 countries, to assist governments assess and address the effects of support measures and their reform, and spur enduring change. Sections 2.1 and 2.2 present the rationale for a sequential approach, and provide an overview of possible steps and associated tools. Section 2.3 considers how governments might identify support measures, document their objectives and estimate their budgetary cost, as a crucial first step towards reform. Section 2.4. addresses how to isolate measures that result in the most significant changes to economic decision-making and environmental performance across different segments of the fossil-fuel value chain, to establish priorities for reform. Section 2.5 identifies analytical tools to inform on possible economic and social effects of reform. Section 2.6 examines how reform measures may be accompanied by complementary policies to alleviate any negative effects of reforms and channel fiscal savings to more productive uses. The chapter concludes with a discussion of how the OECD can support governments in applying the sequential approach and possible forward work priorities.