Webinar by the International Institute for Sustainable Development (IISD) brings together governments and experts to examine how to finance the transition away from fossil fuels
Representatives of the Government of the Netherlands, the Coalition of Finance Ministers for Climate Action, the Clean Energy Transition Partnership (CETP), Transforma and the Centre for Energy, Finance and Development (CEFD) spoke about how fiscal policy and financing can support the transition away from fossil fuels, within Workstream 2 of the Santa Marta process, which deals with macroeconomics and financial incentives.
Moving away from fossil fuels demands answers about money. Who pays for the change? What happens to public budgets that depend on oil and gas revenues? Which subsidies and financial incentives still help to keep the status quo in place? These are the questions of Workstream 2, the macroeconomics and financial incentives strand of the Santa Marta process, which follows on from the First Conference on Transitioning Away from Fossil Fuels, held in Colombia in April.
The webinar “Financing a Transition Away From Fossil Fuels: Building an implementation network for Santa Marta Workstream 2” was organised by the International Institute for Sustainable Development (IISD) in two regional sessions. The session for the Americas, Africa and Europe, held on Wednesday, 30 September, brought together existing initiatives and precedents to identify priority actions and quick wins ahead of the second edition of the Conference, due to be held in Tuvalu in July 2027, with Ireland as co-host.
The session also collected the first expressions of interest in joining the network that will provide input to Workstream 2. Ivetta Gerasimchuk, Director of the Energy Programme at IISD, who moderated the session, explained that Workstream 2 is a shared effort, to be built with civil society organisations, first-mover alliances, development institutions and development banks.
Subsidies and the fiscal system
Laurien Eblé, policy advisor at the Netherlands’ Ministry of Economic Affairs and Climate Policy, presented the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS), launched at COP28 by the Netherlands and with its secretariat at IISD. The coalition is organised around three pillars: transparency, international barriers to reform and phase-out plans.
Each member may choose the methodology for its inventories, so that methodological controversy does not stall action. Last year the coalition published common minimum standards for inventories and, this year, it is developing a common standard for phase-out plans. According to Laurien, phasing out subsidies is not an end in itself: the aim is to reduce emissions.
Alpa Shah, an economist in the Fiscal Affairs Department of the International Monetary Fund, spoke on behalf of the Coalition of Finance Ministers for Climate Action and set out three areas of action for finance ministries: understanding the macro-fiscal risks of the transition, aligning the whole fiscal system with it and making reforms politically and economically durable. “Before governments can decide what to reform, they need to understand what it is that they’re subsidising,” she says.
Estimates of fossil fuel subsidies vary considerably depending on the methodology used, which changes the calculation of who benefits from existing support. In the face of price shocks, the experience of countries that took part in a coalition roundtable pointed to replacing broad-based support measures with targeted, time-bound ones.
Financing the transition without entrenching oil dependence
Before calling for restrictions, international finance needs to offer credible development alternatives and safeguards for public finances, argued Dr Nicolas Lippolis, executive director of CEFD. To illustrate the current context, he cited a statement by the President of Ghana, John Mahama, who in May 2025 encouraged investors to extract the country’s oil before assets become stranded by global decarbonisation. He also mentioned a survey of refining and petrochemical projects under construction or planned in Africa, in countries such as Algeria, Egypt, Senegal, Ghana, Uganda, Nigeria, Kenya and Angola.
For Lippolis, new investments in refining, petrochemicals and gas-fired power generation merit attention because they last for decades: about 25 years for refineries, 30 years for combined-cycle gas power plants and 40 years for pipelines, based on approximate International Energy Agency benchmarks.
“The downstream investments are more dangerous even than the upstream, because investing in the downstream can lock countries into fossil fuel dependent development pathways for a long time,” says Dr Lippolis. In the oil and gas sector, upstream refers to exploration and production, and downstream to the stage that follows, which includes refining, petrochemicals and fuel distribution.
Financing restrictions, he said, are of limited effectiveness. Producers can still obtain funding from commodity traders, regional institutions and Chinese or Gulf partners, sometimes through opaque arrangements in which the country pledges oil it has yet to produce or the government guarantees the debt. Depending on the terms, the state may end up with less revenue and less control over its own production.
The alternative proposed is to align clean energy finance with finance for productive uses. Multilateral development banks, which have already increased their clean energy financing in Africa, as in the Mission 300 (M300) programme, could play a central role in this. There are precedents such as the Distributed Access through Renewable Energy Scale-up (DARES) in Nigeria; the Productive Use Financing Facility (PUFF), run by CLASP with support from the Global Energy Alliance for People and Planet (GEAPP); Powering Renewable Energy Opportunities (PREO); and Distributed Renewable Energy-Agriculture Modalities (DREAM) in Ethiopia.
Most of these precedents are still limited to equipment, small businesses and mini-grids. The challenge is to combine larger-scale clean energy infrastructure with finance for productive investment. “It’s very important to start building evidence that low-carbon development pathways are possible,” says Lippolis, adding that this combination will not stop fossil fuel investment from one day to the next.
Dr Lippolis also pointed to the limits of the platforms that receive this financing. The Just Energy Transition Partnerships (JETPs), agreements in which wealthy countries and financial institutions pledge funds for the transition of developing countries, have not delivered the expected results, with limited concessional finance, difficulty coordinating actors within recipient governments, mismatched expectations between donors and recipients and a lack of continuity in donor financing. (For more, read the study Rethinking Resilience: Energy Security, Fiscal Constraints, and the Financing of Low-Carbon Development in African Oil and Gas Producers, published by CEFD.)
Among approaches that combine public and private resources, he cited the sovereign funds FONSIS in Senegal and NSIA in Nigeria, and Eco Invest, a National Treasury programme in Brazil that auctions concessional capital to public and private financial institutions. He also noted that the Brazil Climate and Ecological Transformation Investment Platform (BIP) is led by the Ministry of Finance and the Brazilian Development Bank (BNDES), although it is still not clear how much investment it generates beyond what would have happened anyway.
From Latin America to international public finance
Diana Barba Patiño, Deputy Director of the Energy Diplomacy area at Transforma, said that fiscal dependence on fossil fuels destabilises Latin American countries and that subsidy reform can free up fiscal space. In her view, without inventories, subsidies are underestimated, because not all incentives are counted.
In Colombia, the gasoline subsidy under the Fuel Price Stabilisation Fund (FEPC), which is regressive and has a large fiscal impact, is being dismantled gradually. In Ecuador, reforms to diesel subsidies are under way, with incentives for transport operators. Colombia also has the Colombia Solar programme, which encourages individual solar power generation.
Charley Roberts, senior policy advisor at the Clean Energy Transition Partnership (CETP), described the partnership, launched at COP26, in which governments and financial institutions commit to ending international public support for fossil fuels. The CETP points out that these flows can shift quickly without harming energy security, and that exclusion policies should cover all relevant instruments and institutions.
IISD said that it is gathering expressions of interest from Global South organisations to join the Workstream 2 implementation network, that there is a new opportunity to submit contributions on the new website of the next conference and that it plans new activities around the World Bank meetings and COP31.
