Fossil fuel subsidies
Fossil fuel subsidies are energy subsidies on fossil fuels. They may be tax breaks on consumption, such as a lower sales tax on natural gas for residential heating; or subsidies on production, such as tax breaks on exploration for oil. Or they may be free or cheap negative externalities; such as air pollution or climate change due to burning gasoline, diesel and jet fuel. Some fossil fuel subsidies are via electricity generation, such as subsidies for coal-fired power stations.
Eliminating fossil fuel subsidies would reduce the health risks of air pollution,[1] and would greatly reduce global carbon emissions thus helping to limit climate change.[2] As of 2021, policy researchers estimate that substantially more money is spent on fossil fuel subsidies than on environmentally harmful agricultural subsidies or environmentally harmful water subsidies.[3] The International Energy Agency says: "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."[4]
Despite the G20 countries having pledged to phase-out inefficient fossil fuel subsidies,[5] as of 2023 they continue because of voter demand,[6][7] or for energy security.[8] Global fossil fuel consumption subsidies in 2022 have been estimated at one trillion dollars;[4] although they vary each year depending on oil prices, they are consistently hundreds of billions of dollars.[9]
Definition[edit]
Fossil fuel subsidies have been described as "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."[10] Including negative externalities such as health costs results in a much larger total.[11] Thus by the IMF definition they are far larger than by the OECD and International Energy Agency (IEA) definitions.[12]
Subsidies for electricity and heat may be taken into account, depending on the share produced by fossil fuels.[12] Sometimes there are disputes about what definition to use: for example the UK government said in 2021 that it uses the IEA definition and does not subsidize fossil fuels,[13] but others said the same year that under the OECD definition it does.[14][15]
Measurement[edit]
Subsidies may be estimated by adding up direct subsidies from government, comparing prices in a country to world market prices, and sometimes attempting to include the cost of damage to human health and the climate.[16] The International Energy Agency estimates 2022 consumption subsidies at 1 trillion dollars, more than ever before.[17]
However the IMF estimates 2020 total subsidies at $5.9 trillion or 6.8 percent of GDP: this figure is much larger because over 90% of it is undercharging for environmental costs and foregone consumption taxes (implicit subsidies).[18] Setting fossil fuel prices that reflect their true cost would cut global CO2 emissions by 10% by 2030, according to the IPCC in 2023.[19]
Unfortunately governments worldwide have increased their subsidies to 7 trillion in 2022 due to high energy prices according to the IMF.[20]
The International Institute for Sustainable Development say that G7 countries should reveal their subsidies every year under Sustainable Development Goal (SDG) indicator 12.c.1 (fossil fuel subsidies).[21]
History[edit]
Tax breaks for oil and gas exploration have been in place since at least the early 20th century.[32]