Despite the series of non-binding intergovernmental agreements discussed in Section 18.5, FFSs remain prevalent around the world (Bast etal. 2015).

Against this backdrop, this section examines the prospects for, and challenges of moving towards a binding multilateral agreement on FFSs. Negotiating such an agreement is obviously highly complex and time consuming. It is also politically challenging. However, the growing recognition of the need to eliminate inefficient and environmentally harmful FFSs, together with the fall in global oil prices, has created a unique opportunity not only to reform FFSs but also to lock in those reforms.

The Need for a Multilateral Legal Regime

It is widely agreed that climate change is a global problem that requires global policy response. The issue of FFSs is no exception. Insofar as the environmental and economic impacts of FFSs are not limited to the subsidizing country only, it is in the interest of all countries to cooperate in phasing out FFSs. It was the recognition of this fact that led to the intergovernmental efforts discussed in the Section 18.5. However, those efforts contain only voluntary commitments with no incentives (or punishments) to encourage or force the countries concerned to undertake or sustain FFS reforms. Past precedent suggests that such commitments may not translate into actual subsidy reforms, and, even when they do, the reforms tend to be vulnerable to oil price shocks, public protest, and changes of political regime. Without any mechanism that ties their hands, reluctant governments often find it easier to renege on their voluntary commitments in times of high and rising oil prices, in the face of popular opposition, or in the run-up to elections (Vagliasindi 2013). It is thus necessary to transform these fragile political commitments into legally binding obligations to ensure that countries undertake and stick to subsidy reforms.

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