Although many countries have explicitly promised to reduce fossil fuel subsidies to combat climate change, this has proven difficult to accomplish. As a result, fossil fuels remain relatively inexpensive, and their use and greenhouse gas emissions continue to grow.
Fossil fuel subsidies take many forms around the world. For example:
- In Saudi Arabia, fuel prices are set by the government rather than the market; price ceilings subsidize the price citizens pay for gasoline. The cost to state-owned oil producers there is offset by oil exports, which dwarf domestic consumption.
- Indonesia also caps energy prices, then compensates state-owned energy companies for the losses they bear.
- In the United States, oil companies can take a tax deduction for a large portion of their drilling costs.
Other subsidies are less direct, such as when governments underprice permits to mine or drill for fossil fuels or fail to collect all the taxes owed by fossil fuel producers.
Estimates of the total value of global fossil fuel subsidies vary considerably depending on whether analysts use a broad or narrow definition. The Organization for Economic Cooperation and Development, or OECD, calculated the annual total to be about US$1.5 trillion in 2022. The International Monetary Fund reported a number over four times higher, about $7 trillion.
A major study of 157 countries between 2003 and 2015 found that governments “collectively made little or no progress” toward reducing subsidies. In fact, the OECD found that total global subsidies nearly doubled in both 2021 and 2022.