What are fossil fuel subsidies?
A handy guide
If you’ve seen our subsidy calculator, you’ll know how much we are all paying. But what are fossil fuel subsidies?
In most countries across the world the fossil fuel industry has its operations, as well the social and environmental damage it causes, subsidized both directly by our taxes and indirectly by the natural environment we rely on.
Fossil fuel subsidies come in two forms
Explicit fossil fuel subsidies are government payments that support fossil fuel companies – such as oil and gas – in locating and producing the fuels they make, as well as tax breaks to make their products cheaper than they otherwise would be.
Implicit fossil fuel subsidies encompass all other costs associated with the many harms fossil fuels have on nature and society. Our taxes pay for some of these implicit costs, such as healthcare costs in places with harmful levels of air pollution or clearing up environmental damage caused by increasingly unpredictable weather patterns. Other costs remain unpaid, such as the costs linked to the erosion of our natural ecosystems that will have a long-term impact on our economies.
Government actions that lower the cost of fossil fuel production, raise prices received by producers or lower prices paid for fossil fuel energy by consumers.
- Lower sales taxes being imposed on domestic energy consumption
- Direct subsidies to producers for oil and gas exploration
- Tax payments to compensate producers for declining production
Other costs imposed by fossil fuels which the industry does not pay for that are either paid by others or are not paid for at all.
- Increased healthcare costs incurred from things like air pollution and heat
- Costs of addressing the consequences of fossil fuel driven climate change
- Limited liability for environmental damage caused by fossil fuels
The history of fossil fuel subsidies
Late 19th / Early 20th century
Many governments subsidize the expensive production of fossil fuels to support energy security and economic growth.
Post WWII period
Subsidies continue with the goal of supporting economic growth in the form of tax breaks, direct financial assistance and favorable policy frameworks.
1970s oil crisis
Shortages and price increases led many governments to intervene to support local production to keep prices down and boost energy security.
Early 21st century
Subsidies are offered to support the emerging renewable energy industry to increase its competitiveness but with little or no decline in fossil fuel support.
2009 G20 summit
The G20 commits to phase out inefficient subsidies - those that encourage wasteful consumption, decrease energy security or impede investment into clean energy.
2019 COP summit
198 nations agree at the Cop26 Summit to reduce and ultimately eliminate ‘inefficient’ fossil fuel subsidies.
According to the IEA in 2022 explicit subsidies for oil and gas rose by 85% and 100% respectively over 2021.