Fossil fuel subsidies

• 1. Introduction

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  Fossil fuel subsidies cost the world between 725 billion and 900 billion dollars in 2024, under a narrow definition. A broader definition puts that same year's total as high as 6.7 trillion dollars. The narrow figure equals 0.6 percent of global GDP. The broader one equals 5.8 percent, a gap worth trillions of dollars. Policy researchers say substantially more money is spent propping up coal, oil, and gas than is spent on environmentally harmful subsidies for agriculture or water. Most of the money goes toward oil and natural gas. It arrives as tax breaks on exploration or discounted sales tax on residential heating fuel. Sometimes it is simply the uncounted cost of the pollution and climate damage caused by burning gasoline, diesel, and jet fuel. What separates the low estimate from the high one is the first question here. Who actually benefits, and why the subsidies survive despite their cost, are the others this documentary explores.

• 2. What Counts As A Subsidy

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  "Any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by energy consumers" is the description used to define a fossil fuel subsidy. Adding negative externalities such as health costs onto that definition makes the total far larger.

  The International Monetary Fund uses exactly that wider approach, producing far bigger totals than the definitions used by the OECD and the International Energy Agency. Subsidies for electricity and heat are folded in too, in proportion to how much of that power comes from burning fossil fuels. Subsidies granted to coal-fired power stations are one example.

  In 2021 the government of the United Kingdom said it follows the IEA's definition and therefore does not subsidize fossil fuels. Other analysts, applying the OECD's definition to the same country that same year, reached the opposite conclusion. That same disagreement over definitions runs straight into the problem of measurement itself.

• 3. Measuring The Bill

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  Three methods get used to put a number on fossil fuel subsidies. Governments add up direct payments, compare domestic fuel prices to world market prices, and sometimes tally the damage done to human health and the climate. The IPCC calculated in 2023 that pricing fossil fuels at their true cost would cut global CO2 emissions by 10 percent by 2030. The International Institute for Sustainable Development wants G7 countries to publish their subsidy figures every year, under a metric known as SDG indicator 12.c.1.

  The fiscal cost of government support for fossil fuels reached 1.1 trillion dollars in 2023. Ninety percent of it was tied to consumption rather than production. Residential users alone accounted for 189 billion dollars of that support. Manufacturing and other industries received 103.8 billion dollars. The OECD concluded that "most of this support lacked systematic targeting towards those in greatest need, raising both equity and efficiency concerns."

  In 2023, governments also priced carbon through fuel taxes, carbon taxes, and emissions trading systems. That combined measure, the Net Effective Carbon Rate, averaged 14.0 euros per tonne of CO2 equivalent. Only 42 percent of greenhouse gas emissions were covered by a positive rate at all. Just 27 percent faced an explicit carbon tax or trading system. The OECD warned that the high fiscal cost of fossil fuel support, paired with the low carbon rate, threatens countries' net zero commitments. It called for reforms that better target support and phase out inefficient subsidies as soon as possible. Those unevenly targeted billions matter most once the question turns to who actually gets the benefit.

• 4. Who Wins, Who Loses

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  A subsidized tank of gasoline for a car driver in Iran costs less precisely because a government subsidy is holding the price down. Politicians defend that kind of subsidy because it can win votes at elections, and some officials argue it helps poorer citizens get by.

  The poorest citizens usually do not own cars in the first place, which is one reason economists broadly disagree with that defense. The consensus among them is that wealthier people capture most of the absolute benefit. The International Energy Agency put it bluntly: "High fossil fuel prices hit the poor hardest, but subsidies are rarely well-targeted to protect vulnerable groups and tend to benefit better-off segments of the population."

  Higher food costs are one way that cutting fossil fuel subsidies can still hurt the poor indirectly. That cost lands hard relative to their income, even though the absolute dollars involved are smaller than what wealthier households save. Producers such as oil companies push back too, warning that higher taxes on them would cost jobs and undermine national energy security. That tension between political survival and economic logic carries a cost that shows up first in hospital statistics.

• 5. The Toll On Health And Climate

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  Air pollution linked to fossil fuel subsidies is estimated to kill hundreds of thousands of people every year. That single estimate ties the subsidy debate directly to public health rather than just economics.

  The International Monetary Fund warns that a fossil fuel subsidy works as a negative price on carbon, encouraging excess energy use. That excess use leaves countries more exposed to swings in international energy prices. It also spends government money that could otherwise fund other priorities. Some governments counter that the subsidies exist precisely to shield their citizens from those same price swings.

  The International Energy Agency argues that phasing the subsidies out would benefit energy markets, climate change mitigation, and government budgets all at once. Removing them would also preserve more of the world's remaining carbon budget, helping to limit climate change. Whether governments act on that argument depends less on economics than on politics, and on how difficult phase-out turns out to be in practice.

• 6. The Politics Of Phasing Out

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  Tax breaks for oil and gas exploration date back to at least the early 20th century. That makes it one of the oldest forms of energy subsidy still in use. At a September 2009 meeting, the G-20 nations committed to "rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption." Many observers argue that every fossil fuel subsidy fits that description of inefficient. Yet subsidies persist, largely because of voter demand and concerns about energy security.

  In July 2014, Ghana abolished all of its diesel and gasoline subsidies. That same month, Egypt raised diesel prices by 63 percent. It was one part of a broader reform package meant to remove Egypt's fuel subsidies within five years. Most economists recommend a different long-term fix: replacing consumption subsidies with direct payments targeted at poor people or households, rather than subsidizing fuel for everyone. Deciding exactly how to spend the money saved by a phase-out will likely require country-specific studies.

  The International Institute for Sustainable Development argues that a carefully managed phase-out would actually increase a country's energy security rather than undermine it. Even so, actually withdrawing a subsidy remains politically difficult almost everywhere it has been attempted. Whether that argument persuades finance ministries becomes clearer once the true scale of global subsidies, country by country, comes into view.

• 7. The World's Biggest Spenders

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  The International Energy Agency counted 1 trillion dollars in government subsidies for fossil fuel consumption worldwide in 2022. A separate working paper from the International Monetary Fund, published in September 2021, broke down what drives that global figure. Underpriced local air pollution costs account for 42 percent of it, and global warming costs add another 29 percent. Other local externalities such as congestion and road accidents make up 15 percent. Explicit subsidies account for 8 percent, and forgone consumption tax revenue makes up the last 6 percent.

  By that same IMF study, global fossil fuel subsidies totaled 5.9 trillion dollars in 2020, equal to 6.8 percent of world GDP. That share was projected to climb to 7.4 percent by 2025. A companion 2021 IMF study of the 20 biggest subsidizers put the combined total for those countries at 5,857.36 billion dollars in 2020. China topped the list at 2,203.23 billion dollars, more than three times the 662.05 billion dollar total for the United States. Russia followed at 522.62 billion dollars, and India at 247.07 billion dollars.

  By fuel type, the OECD's 2023 accounting put coal subsidies at 27.7 billion dollars, oil at 400 billion dollars, and gas at 343 billion dollars. Oil and gas together dwarfed coal support in dollar terms that year. Behind each of those totals sits a different national story. Some are oil producers guarding their revenue; others are importers wary of the political cost of removing a subsidy.

• 8. Nations And Their Bargains

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  Canada's federal government subsidizes fossil fuel exploration and production directly, while Export Development Canada regularly finances oil and gas companies. Ottawa committed to phasing out inefficient fossil fuel subsidies by 2025, a deadline the country missed. The government's own reviews are the only check on its compliance. Provinces add their own layer of support. Saskatchewan, for instance, offers a fuel tax exemption for farmers and a sales tax exemption for the natural gas used to heat homes.

  China's 15th Five-Year Plan backs clean energy. It also calls for "strengthening the clean and efficient utilisation of fossil energy." China's national energy policy prioritizes energy security, and coal-fired power plants are still being built. The OECD has catalogued the country's various fossil fuel subsidies in detail. The Centre for Research on Energy and Clean Air argues that capacity payments to coal plants should be reformed to reward flexibility instead.

  India's fossil fuel subsidies for the 2025 financial year were estimated by the International Institute for Sustainable Development at 430 billion rupees. That figure equals 2.3 percent of India's GDP.

  Under President Rouhani, the value of subsidies Iran gave its citizens for fossil fuels rose 42 percent in 2019. That pushed the total past 15 percent of the country's GDP. The same year's subsidies equaled 16 percent of the entire world's energy subsidies, making Iran the largest subsidizer of energy prices anywhere. The consequences include wasteful consumption patterns, large budget deficits, price distortions across the economy, and pollution. They also include a lucrative, multi-billion-dollar contraband trade with neighboring countries, driven by rogue elements inside the Iranian government who profit from the price gap.

  Libya recorded the highest fossil fuel subsidy of any country as a share of GDP in 2020, at 17.5 percent.

  Russia holds the world's largest natural gas reserves, 27 percent of the global total, along with the second-largest coal reserves and the eighth-largest oil reserves. As of 2015 it ranked as the world's third-largest energy subsidizer, supporting electricity, natural gas, and oil extraction. About 60 percent of its subsidies go to natural gas, with the rest spent on electricity, including underpriced gas delivered to power stations. For oil extraction, the government hands out tax exemptions and duty reductions worth roughly 22 billion dollars a year. Some of those same breaks also apply to natural gas extraction, though most go to oil. Economists recommend Russia lower its domestic subsidies to help its economy, but the government fears that removing them could trigger social unrest.

  Most of Saudi Arabia's energy subsidies are implicit rather than direct. Domestic oil prices sit below global market prices but still above the cost of domestic production. That gap produces forgone revenue rather than a direct subsidy bill. One study has argued that Saudi Arabia's incremental electricity subsidy was effectively eliminated after the country's 2018 domestic energy price reforms.

  Estimates of United States fossil fuel subsidies vary widely depending on who is counting. The Cato Institute calls the subsidies negligible, while the Center for American Progress puts direct subsidies at 29 billion dollars a year. Because the value of a statistical life is assumed to be zero in these accounts, the health damage goes unmeasured. That includes harm from burning coal and from air pollution linked to oil products. The Environmental Protection Agency is developing guidance to estimate what it calls the Value of Mortality Risk.

  In Venezuela, gasoline is subsidized, one of the shortest entries in the whole record. How thoroughly a government's fossil fuel subsidies get documented, it turns out, varies almost as much from country to country as the subsidies themselves.