Fossil fuel subsidies

Fossil fuel subsidies are energy subsidies on fossil fuels. Under a narrow definition, fossil fuel subsidies totalled around $725 billion (0.6% of global GDP) to $900 billion in 2024. Under a more expansive definition, they totalled $6.7 trillion (5.8% of GDP). Most subsidy is for oil and natural gas. Subsidies are mainly 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, and would greatly reduce global carbon emissions thus helping to limit climate change. 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. 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."

Despite the G20 countries having pledged to phase-out inefficient fossil fuel subsidies, they continue because of voter demand, or for energy security. However the International Institute for Sustainable Development says that, done carefully, phasing-out fossil fuel subsidies would increase energy security.