Underpriced and Overused: Fossil Fuel Subsidies Data 2025 Update

IMF Working Papers, December 19, 2025

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Canonical URL: Underpriced and Overused: Fossil Fuel Subsidies Data 2025 Update

Authors: Simon Black, Weronika Celniak, Alberto Garcia Huitron, Ian W.H. Parry, Paulina Schulz Antipa, Nate Vernon-Lin
Published: December 19, 2025
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798229034715.001

Bi-annual assessment of efficient fossil fuel prices and subsidies for 170 countries.
Based on a comprehensive analysis of environmental and other externalities from fuel consumption.

Explicit (or fiscal) subsidies were $725 billion (0.6 percent of GDP) in 2024.
Implicit subsidies, primarily underpricing of environmental costs, were $6.7 trillion (5.8 percent of GDP) in 2024.
Three quarters of implicit subsidies stem from underpriced air pollution and climate change.
Relative to GDP:
- Explicit subsidies have stabilized at pre-COVID levels.
- Implicit subsidies have increased somewhat and are expected to rise gradually until 2035.

Removing explicit subsidies:
- CO2 emissions would be reduced by six percent below baseline levels in 2035.
- Would avoid 70,000 premature air pollution deaths annually.
- Would raise 0.6 percent of GDP in government revenue.
- Would generate net economic benefits worth 0.5 percent of GDP.
Removing both explicit and implicit subsidies (through corrective taxes):
- Would generate substantially larger benefits, including 1.1 million fewer premature air pollution deaths.
- Would produce a 46 percent reduction in CO2 emissions.
- Noted caveat: politically difficult to implement.

Fuel subsidies are an inefficient way to support low-income households:
- For every dollar spent on explicit fuel subsidies, the poorest 20 percent of households receive just 8 cents.

Explicit subsidy removal yields measurable environmental, health, revenue, and welfare gains.
Corrective taxes addressing both explicit and implicit subsidies produce much larger health and emissions benefits but face political economy constraints.
Subsidy reform should consider targeted support mechanisms for low-income households given the poor targeting performance of fuel subsidies.

Authors: Simon Black, Weronika Celniak, Alberto Garcia Huitron, Ian W.H. Parry, Paulina Schulz Antipa, Nate Vernon-Lin
Date: December 19, 2025
Series: IMF Working Papers, Working Paper No. 2025/270
Pages: 47
DOI: https://doi.org/10.5089/9798229034715.001

Source: Underpriced and Overused: Fossil Fuel Subsidies Data 2025 Update (IMF Working Papers, 2025).