Fossil Fuel Subsidies and Their Impact
Fossil fuel subsidies make it harder to transition to low-carbon energy sources by reducing the short-term incentives to switch.
These subsidies can be explicit (government payments to make fossil fuels cheaper) or implicit (societal costs like air pollution and climate change).
Global explicit subsidies for fossil fuels were around $1.5 trillion in 2022, with 80% going to consumers.
Types of Explicit Subsidies
Production Subsidies: Payments to fossil fuel producers to lower extraction and refining costs.
Consumption Subsidies: Payments to consumers to make fossil fuels cheaper at the point of purchase.
In 2022, the price of gas rose sharply, leading to increased consumption subsidies to support households.
Global Variations in Subsidies
Major fossil fuel producers like Saudi Arabia and Turkmenistan give large subsidies, over $500 per person.
Some regions, like South Asia and Africa, provide much smaller subsidies (often under $20 per person).
In India, fossil fuel subsidies dropped from $9 per person in 2015 to $3 in 2021.
Implicit Subsidies and Their Effects
Implicit subsidies, including societal costs like pollution and climate change, make up 77% of the $7 trillion total subsidy figure.
These hidden costs include local air pollution (30%), climate change impacts (30%), and road use effects (17%).
Reducing subsidies could involve policies like carbon taxes, congestion pricing, or removing direct producer/consumer support.
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