Fossil fuel subsidies

Or they may be free or cheap negative externalities; such as air pollution or climate change due to burning gasoline, diesel and jet fuel.

[4] 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.

"[5] Despite the G20 countries having pledged to phase-out inefficient fossil fuel subsidies,[6] as of 2023[update] they continue because of voter demand,[7][8] or for energy security.

[16] Setting fossil fuel prices that reflect their true cost would cut global CO2 emissions by 10% by 2030, according to the IPCC in 2023.

The OECD said that "Most of this support lacked systematic targeting towards those in greatest need, raising both equity and efficiency concerns."

Reforms should focus on better targeting those most in need and phasing out inefficient support for fossil fuels as soon as possible to enable the release of much-needed resources for the net zero transition and help accelerate innovation for energy efficiency.

Given the high costs of inaction, governments should reaffirm and implement their SDG commitment to phase out and reform inefficient support to fossil fuels to align fiscal policy with climate goals.

"[19]: 4 Subsidies on consumption reduce the price of energy for end consumers, for example the cost of gasoline for car drivers in Iran.

The consensus among economists is that the rich get most absolute benefit from fossil fuel subsidies,[20] for example the poorest people do not usually own cars.

[26] Many economists recommend replacing consumption subsidies with direct payments targeted at poor people or households.

[5] At their meeting in September 2009 the G-20 countries committed to "rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption".

The Canadian federal government offers subsidies for fossil fuel exploration and production and Export Development Canada regularly provides financing to oil and gas companies.

A 2018 report from the Overseas Development Institute, a UK-based think tank, found that Canada spent a greater proportion of its GDP on fiscal support to oil and gas production in 2015 and 2016 than any other G7 country.

[48] This situation is leading to highly wasteful consumption patterns, large budget deficits, price distortions in its entire economy, pollution and very lucrative (multi-billion dollars) contraband (because of price differentials) with neighbouring countries each year by rogue elements within the Iranian government supporting the status-quo.

[55] However, the potential elimination of energy subsidies in Russia carries the risk of social unrest that makes Russian authorities reluctant to remove them.

Contrary to the estimates above, a recent paper posits that the incremental electricity subsidy in Saudi Arabia has been eliminated as a result of the 2018 domestic energy price reforms.

Fossil-fuel subsidies per capita, 2019. Fossil-fuel pre-tax subsidies per capita are measured in constant US dollars.
Fossil-fuel subsidies as a share of GDP, 2019. Fossil-fuel pre-tax subsidies are given as a share of total gross domestic product.