"Fossil fuel subsidy reform is undoubtedly one of the major tools in the hands of the international commuhnity to fight climate change," WTO Deputy Director General Harsha Vardhana Singh said at a conference hosted by the organisation on the issue.

"Reflections on the link between trade and climate change, and on the eventual role of the WTO rulebook on an issue such as fossil-fuel subsidies, must take place," Singh told the meeting.

"We must prepare ourselves intellectually for the moment when we may be required to act," he added, warning that "much brainstorming remains to be done."

Leaders of the G20 group of emerging and developed nations agreed in September 2009 to a US plan to work toward phasing out some government subsidies for fossil fuel blamed for global warming, a joint statement said.

However, the issue is highly contentious and complex, with subsidies taking a range of direct and indirect forms including tax breaks, credit or insurance support, as well as incentives for producers and consumers, while several emerging and industralised nations are reluctant to shed them.

"The magnitude of fossil fuel subsidies to producers and consumers could reach over 700 billion dollars a year," said Steven Stone, chief of the UN Environment Programme's (UNEP) economics and trade branch.

Nonetheless, economists and environmentalists at the conference stressed that reforming fossil fuel subsidies was essential to end distortions on energy markets and to price in the environmental costs and allow alternative clean energy sources to compete.

A range of studies by international bodies has estimated that subsidies reform would cut carbon emissions by 1.1 percent in the short-term and by up to 18 percent by 2050, according the Global Subsidies Initiative, an academic think tank.

The WTO's rules restrict some types of subsidies on a range of goods to establish a consistent international treatment for trade.

But changes to its rulebook need approval from a consensus of the 153 member nations and blocs, which is notoriously elusive.

A trade diplomat pointed out that the issue of fossil fuel subsidy restrictions has been raised before in international trade talks.

"It has never been out of the radar, it has juts dropped off the center of the radar," he added.

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