3 ways policymakers can realign incentives to support clean energy
Gillian Nelson, Director of Policy and Strategy; Emily Huynh, Manager, Built Environment; and Molly Walton, Director of Energy
The energy transition is underway, with global investment in clean energy double that of fossil fuels. Yet governments are sending inconsistent signals, both through their national climate commitments — which do not reflect the potential of this momentum — and their fiscal and policy frameworks.
Government incentives — interventions like grants, tax breaks and regulatory preferences — influence real-world market decisions. But they are not currently set up to harness the huge potential of a transition to clean, electrified solutions. Instead, they are skewed toward an inefficient and expensive system that is overly dependent on fossil fuels.
Businesses are ready to help shape an energy system built on clean electrification and renewables that strengthens competitiveness, improves public health and delivers prosperity for all. But they need governments to provide coherent and clear fiscal and policy signals.
Realigning or repurposing incentives, including subsidies, toward clean energy is a strategic economic choice. It remains one of the most powerful tools that governments have at their disposal to accelerate the transition — delivering energy security, job growth and greater global competitiveness.
Representatives of the business community around the world recognize this. That’s why over 35 organizations, representing over 135,000 companies globally, signed We Mean Business Coalition’s open letter to world leaders ahead of COP30, calling for governments to realign public finance and policy support toward an affordable, reliable clean energy system.
How policymakers can realign incentives
Taken from the Coalition’s new white paper on the business case for realigning incentives, we outline below what three approaches mean in practice for business and households. Every country’s energy system is different and will need different measures to realign support with the clean energy transition.
Nonetheless, some steps are likely to be common to all:
1. Realign fossil fuel subsidies toward clean energy solutions
The vast scale of fossil fuel subsidies includes direct government payments, tax exemptions or credits (e.g., to support drilling for fossil fuels) and market levers that artificially lower the end-user price of fossil fuels, relative to full cost of supply. Governments spent $1.1 trillion on subsidies for fossil fuels in 2023 alone, deepening many countries’ dependence on oil and gas imports at a time when public budgets are stretched and consumers seek reliable, affordable energy.
By supporting business and households with affordable clean technologies, governments will deliver long-term savings. Renewables and batteries are now cheaper and faster to deploy than fossil assets, and heat pumps, electric cooking and EVs uses two to five times less energy than fossil fuel–powered alternatives — meaning lower energy costs, improved air quality and reduced noise.
Markets need clarity; consumers need affordable choices. Incentives that reward efficient choices do both: They cut upfront costs for households and businesses and create the predictable demand pipeline industry needs to scale clean solutions.
Aligned incentives deliver. In China, EV incentives on both demand and supply side helped lift sales from fewer than 500 EVs sold in 2009 to 11 million in 2024 — representing half of all cars sold in China and almost two-thirds of global EV sales. Over 10% of China’s economic growth in 2024 was from clean energy technologies like EVs, highlighting the clear economic benefits of such measures.
A similar story can be seen in Norway, where strong fiscal incentives, benefits and infrastructure investments led to EVs comprising 88% of car sales in 2024. This helped lead to a 12% decrease in oil consumption for road transport compared to 2021.
2. Implement stable regulatory frameworks and standards
Regulatory frameworks and standards can also incentivize business to transition more quickly to clean energy. Doing so can lower the risks of stranded assets and create opportunities for business to capitalize on new markets. Examples of regulatory signals include energy efficiency standards, emission limits and fuel quality standards.
In Australia, for example, when large office buildings are sold or leased, the Commercial Building Disclosure program requires owners to disclose how efficiently the building uses energy in operation (known as its NABERS rating), not just how it was designed to perform. With over 90% of Australia office space NABERS-rated, buildings have reduced their energy intensity by 35% on average in nine years, thereby using significantly less energy.
Clear, performance-based policies such as these contribute to the same goals that subsidy reforms seek to accomplish across the broader economy: They provide credible signals, reduce investment risk and support the adoption of clean energy solutions.
By setting clear regulations that tighten performance requirements over time, governments create predictable, consistent regulatory landscapes that drive efficiency, lower emissions and provide greater certainty on future customer demand for a service or product — critical for business confidence and long-term investment planning.
3. Reform power markets
Power markets were built for the fossil era. To deliver an energy system of the future, they must be redesigned so that the incentives structures, infrastructure and regulations are aligned with a clean, electrified future. This will help unlock investment and ensure that power is abundant, affordable, reliable and clean, for businesses and consumers.
One of the biggest challenges is the price of electricity. For example, in the UK, 98% of the wholesale price of electricity is dictated by the price of natural gas, despite only accounting for 30% of total generation in 2024. As a result, consumers and industries pay higher prices that don’t reflect the actual mix of generation costs.
Countries can consider a host of measures to reduce prices, incentivize electrification and unlock clean investment. Governments can shift market structures to enable greater participation and competition (linked to better access, more renewables, deeper private finance and improved price stability); establish long-term contracting frameworks, such as bankable contracts for difference to anchor investment in renewables and cut the cost of capital; create flexibility markets that properly reward storage, demand-response and flexible generation; and reform retail and network tariffs to unlock demand-side flexibility at scale while protecting consumers.
Business overwhelmingly backs this shift. In a global poll of 1,500 executives, 97% back a shift to renewables-based power, with access to clean electricity ranking among the top factors for investment (90%) and locating supply chains (85%) and operations (83%).
The opportunity at COP30
At COP30, the focus is all about implementation.
With realigned incentives, governments have a concrete policy measure that will contribute to achieving several elements of the Global Stocktake, including the goals of tripling renewable energy, doubling energy efficiency and transitioning away from fossil fuels in energy systems to achieve net zero — while explicitly responding to the goal of phasing out inefficient fossil fuel subsidies.
By doing so, governments will unlock faster progress, building on and accelerating the momentum in the private sector. This will bring down costs and enable delivery that goes beyond the current insufficient ambition embodied in NDCs submitted by Parties this year — an imperative made even more urgent by the UNEP Emission Gap report, which shows the scale of the gap to be closed between where we are and the Paris Agreement’s 1.5°C limit.
Business is already moving; policy must now match the pace. Governments that send strong signals at COP30 in Belém, and then put in place the right policies back home, will unlock cheaper bills, stronger energy security and a competitive edge in the industries of the future. Those that delay will import volatility and watch investment go elsewhere.
The choice is strategic and urgent: Use the platform of COP30 to start shifting from aspiration to execution — and build economies that are affordable, secure and clean.