## Fossil Fuel Subsidies Surged to Record $7 Trillion

_IMF Blog, August 24, 2023_

## Source details

**Canonical URL:** [Fossil Fuel Subsidies Surged to Record $7 Trillion](https://www.imf.org/en/blogs/articles/2023/08/24/fossil-fuel-subsidies-surged-to-record-7-trillion)

## Other formats

- [Markdown version](/en/blogs/articles/2023/08/24/fossil-fuel-subsidies-surged-to-record-7-trillion/index.md)
- [Structured JSON version](/en/blogs/articles/2023/08/24/fossil-fuel-subsidies-surged-to-record-7-trillion/index.json)
- [Bundle manifest](/en/blogs/articles/2023/08/24/fossil-fuel-subsidies-surged-to-record-7-trillion/bundle-manifest.json)

## Bibliographic details
- Authors: Simon Black, Ian Parry, Nate Vernon-Lin
- Published: August 24, 2023

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### Key findings and scale
- Fossil-fuel subsidies surged to a record $7 trillion last year.
- Subsidies cost the equivalent of 7.1 percent of global gross domestic product.
- Governments spend 4.3 percent of global income on education and 10.9 percent on healthcare, for comparison.
- Fossil-fuel subsidies rose by $2 trillion over the past two years.
- Explicit subsidies (undercharging for supply costs) more than doubled to $1.3 trillion.
- Updated estimates cover 170 countries of explicit and implicit subsidies (undercharging for environmental costs and forgone consumption taxes).
- The vast majority of subsidies are implicit; consumers did not pay for over $5 trillion of environmental costs last year.
- This implicit-subsidy figure would be almost double if damage to the climate was valued at levels found in a recent study published in the scientific journal Nature instead of the baseline assumption that global warming costs equal the emissions price needed to meet Paris Agreement temperature goals.

### Environmental and health impacts
- Consuming fossil fuels imposes enormous environmental costs—mostly from local air pollution and damage from global warming.
- Implicit subsidies are projected to grow as developing countries increase their consumption of fossil fuels toward the levels of advanced economies, given higher-polluting power plants, factories, and vehicles and dense populations near pollution sources.
- Scrapping explicit and implicit fossil-fuel subsidies would:
  - Prevent 1.6 million premature deaths annually.
  - Raise government revenues by $4.4 trillion.
  - Put emissions on track toward reaching global warming targets.
  - Redistribute income because fuel subsidies benefit rich households more than poor ones.

### Mechanism and economic effects of reform
- Removing explicit subsidies and imposing corrective taxes would increase fuel prices, leading firms and households to factor environmental costs into consumption and investment decisions.
- Expected outcomes of such price adjustments include significantly cutting global carbon-dioxide emissions, cleaner air, less lung and heart disease, and more fiscal space for governments.

### Policy recommendations and implementation considerations
- Design, communicate, and implement reforms clearly and carefully as part of a comprehensive policy package that underscores the benefits.
- Use a portion of increased revenues to compensate vulnerable households for higher energy prices.
- Use the remainder of increased revenues to:
  - Cut taxes on work and investment.
  - Fund public goods such as education, healthcare, and clean energy.

### Timing and urgency
- With global energy prices receding and emissions rising, now is the opportune time to phase out explicit and implicit fossil-fuel subsidies for a healthier and more sustainable planet.

*IMF Blog (Chart of the Week) — August 24, 2023*

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## Content in this bundle

- **Energy Subsidy Template**
  - [Energy Subsidy Template (Markdown version)](/-/media/files/topics/energy-subsidies/externalfuelsubsidiestemplate2023new.xlsx.md){rel="alternate" type="text/markdown"}
  - [Energy Subsidy Template (XLSX)](/-/media/files/topics/energy-subsidies/externalfuelsubsidiestemplate2023new.xlsx){rel="external" type="application/vnd.openxmlformats-officedocument.spreadsheetml.sheet"}

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## References

- [our new paper](https://www.imf.org/en/Publications/WP/Issues/2023/08/22/IMF-Fossil-Fuel-Subsidies-Data-2023-Update-537281)

_Source: https://www.imf.org/en/blogs/articles/2023/08/24/fossil-fuel-subsidies-surged-to-record-7-trillion_