Sylvie Willis
Fossil fuel subsidies are a pressing global issue, with governments spending approximately $7 trillion in 2022, or 7.1% of the global GDP. This amount has surged by $2 trillion in the past two years, with China contributing the most at over $2.2 trillion. Other major subsidizers include the United States, Russia, India, and Japan. These subsidies have significant environmental and economic implications, including hampering the development of renewable energy sources, contributing to air pollution and global warming, and causing hundreds of thousands of premature deaths annually. Despite pledges to phase out inefficient fossil fuel subsidies, they persist due to voter demand and energy security concerns. The rich typically benefit the most from these subsidies, and their removal may indirectly impact the poor through price increases.
| Characteristics | Values |
|---|---|
| Country that spends the most on fossil fuel producer subsidies | China |
| Amount spent by China on fossil fuel subsidies | $2.2tn in 2022 |
| Amount spent on global fuel subsidies in 2022 | $7tn |
| Amount spent on global fuel subsidies in 2023 | $7tn |
| Amount spent on fossil fuel subsidies by the US in 2022 | $757bn |
| Amount spent on fossil fuel subsidies by Russia | $421bn |
| Amount spent on fossil fuel subsidies by India | $346bn |
| Amount spent on fossil fuel subsidies by Japan | $310bn |
| Country with the highest fossil fuel subsidies per capita in 2022 | Qatar |
| Amount spent on fossil fuel subsidies per capita by Qatar in 2022 | more than $14,100 per person |
| Amount spent on fossil fuel subsidies by Saudi Arabia | $7000 per person |
| Country with the highest subsidies among G20 major economies | Saudi Arabia |
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What You'll Learn
Qatar spent the most per person
Fossil fuel subsidies have been surging and reached a record $7 trillion in 2022, according to an IMF working paper. This amount is more than governments spend on education and almost two-thirds of what they spend on healthcare. Fossil fuel subsidies are defined as "any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by energy consumers."
Despite the G20 countries' pledge to phase out inefficient fossil fuel subsidies, they continue due to voter demand or energy security concerns. Among the G20 countries, Saudi Arabia provided the highest subsidies of any major economy at nearly $7000 per person, primarily for oil products. However, when considering the total fuel subsidies per capita, Qatar, a small gas-rich country, extended the highest subsidies in 2022, spending more than $14,100 per person. The majority of Qatar's fuel subsidies were for natural gas and equated to about 19% of its GDP.
Following Qatar and Saudi Arabia, other countries with significant fossil fuel subsidies include China, the United States, Russia, India, Japan, Bahrain, and Kuwait. These countries contribute significantly to the global fuel subsidies, with China being the highest contributor at more than $2.2 trillion in 2022.
The persistence of fossil fuel subsidies is a concern for many due to their impact on the environment and the hindrance they pose to the development of renewable energy sources. Fossil fuel subsidies incentivize increased oil production and lower prices, discouraging the transition to renewable alternatives. Additionally, the subsidies benefit the rich more than the poor, and their removal could generate significant revenue for governments, improve public health, and contribute to slowing climate change.
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China contributes the most in absolute terms
Fossil fuel subsidies have been surging, with a total of about $7 trillion in subsidies worldwide in 2022, up by about 18.3% from the previous year. This amount is equivalent to 7.1% of global gross domestic product (GDP), more than what governments spend on education and about two-thirds of healthcare spending. The vast majority of these subsidies are implicit, with consumers not paying for over $5 trillion in environmental costs last year.
In absolute terms, China contributes the most to global fossil fuel subsidies, with more than $2.2 trillion in 2022. This amount is significantly higher than that of the next four countries, which are the US ($757 billion), Russia ($421 billion), India ($346 billion), and Japan ($310 billion). China's energy policy states that energy security requires the subsidization of fossil fuel production and consumption, including coal, oil, and natural gas. This position has resulted in China's fossil fuel subsidies being estimated at nine times its renewable energy subsidies in the 2021 financial year.
The high level of fossil fuel subsidies in China and other countries has significant implications for the environment and society. These subsidies encourage excess energy use, making countries more vulnerable to variations in international energy prices. They also hamper the development of renewable energy sources, as fossil fuel companies are incentivized to maintain their dominance in the energy market. The environmental costs of fossil fuel consumption, including local air pollution and damage from global warming, are enormous and often not reflected in prices.
There is a growing consensus that removing fossil fuel subsidies is crucial for addressing climate change and improving public health. Scrapping these subsidies is estimated to prevent 1.6 million premature deaths annually and raise government revenues by $4.4 trillion. However, the removal of subsidies can be complex due to potential indirect price increases that may impact vulnerable households. A well-designed and carefully implemented policy package is necessary to ensure a successful transition away from fossil fuel subsidies.
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Fossil fuel subsidies are rising
Fossil fuel subsidies have been rising steadily over the years, with global subsidies reaching a staggering $7 trillion in 2022, up by about 18.3% from the previous year. This amount is equivalent to 7.1% of global gross domestic product (GDP), exceeding the amount governments spend annually on education and two-thirds of healthcare spending.
The rise in subsidies is attributed to governments setting fuel prices that do not reflect supply costs and the environmental damage caused by consumption. Nearly half of the global fuel subsidies in 2022 were in East Asia and the Pacific, with China contributing the most at over $2.2 trillion. This was followed by the United States, Russia, India, and Japan.
The small, gas-rich country of Qatar provided the highest fuel subsidies per capita in 2022, spending more than $14,100 per person, with the majority of subsidies going towards natural gas. Other countries with high subsidies include Saudi Arabia, Bahrain, Kuwait, and South Korea.
The persistence of fossil fuel subsidies is concerning for several reasons. Firstly, they incentivize the production and consumption of fossil fuels, hindering the transition to renewable energy sources. Secondly, they often benefit wealthy households more than poor ones, exacerbating income inequality. Finally, the environmental costs of fossil fuels, including air pollution and global warming, are enormous, and the failure to reflect these costs in prices poses a significant threat to our planet's health and sustainability.
To address these concerns, the International Monetary Fund (IMF) and other organizations advocate for fuel price reform and the implementation of non-pricing policy mechanisms, such as emission standards and clean technology subsidies. By phasing out explicit and implicit fossil fuel subsidies, we can reduce air pollution, generate revenue, curb climate change, and redistribute income in a more equitable manner.
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They disproportionately benefit the rich
Fossil fuel subsidies disproportionately benefit the rich. While fossil fuel subsidies are intended to protect consumers by keeping prices low, they come with significant drawbacks. One of the main issues is that they disproportionately favour wealthy corporations and investors over vulnerable communities.
The true cost of fossil fuels is often not reflected in their market price due to externalities, such as environmental and health costs. These externalities are often borne by taxpayers and disproportionately impact low-income communities and marginalized populations living near highly polluting facilities. The health consequences of air pollution and climate change also disproportionately affect minority and low-income populations. As a result, fossil fuel subsidies contribute to unequal health outcomes and place a disproportionate burden on vulnerable communities.
Additionally, the economic benefits of fossil fuel subsidies tend to flow towards shareholders and executives of successful fossil fuel companies, further entrenching their wealth and political power. This dynamic exemplifies a regressive economic policy, where taxpayer dollars contribute to the extraordinary wealth of a select few. The general public, including lower-income households, bears the cost of these subsidies through higher taxes, inefficient allocation of resources, and the negative consequences of environmental degradation.
Furthermore, fossil fuel subsidies hinder the transition to renewable energy sources. By keeping fossil fuel prices artificially low, subsidies make renewable energy less competitive and slow down the adoption of cleaner alternatives. This delays the much-needed shift towards a more sustainable energy landscape, perpetuating the reliance on finite resources and exacerbating the environmental and social impacts of climate change.
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They negatively impact the environment
Fossil fuel subsidies have increased rapidly in recent years, with a total of $7 trillion spent worldwide in 2022. This is equivalent to 7.1% of global GDP, reflecting a $2 trillion increase since 2020. China contributes the most to global fuel subsidies, followed by the US, Russia, India, and Japan. Qatar, a small gas-rich country, extended the highest total fuel subsidies per capita in 2022, spending more than $14,100 per person.
These subsidies have significant negative impacts on the environment. Firstly, they contribute to global warming and climate change. The production and consumption of fossil fuels, such as oil, coal, and natural gas, release greenhouse gas emissions, which trap heat in the atmosphere, leading to rising global temperatures. Climate change has already resulted in extreme heatwaves, droughts, and increased frequency and intensity of natural disasters. By subsidizing fossil fuels, governments are investing more in supporting them than in transitioning to cleaner and renewable energy sources.
Secondly, fossil fuel subsidies encourage pollution, particularly local air pollution. The burning of fossil fuels releases harmful pollutants, including particulate matter, nitrogen oxides, and sulfur dioxide, which have detrimental effects on human health and the environment. Particulate matter, for instance, can penetrate deep into the lungs, causing respiratory and cardiovascular issues. Air pollution from fossil fuels has been linked to millions of deaths globally each year.
Additionally, fossil fuel subsidies can lead to environmental degradation and ecosystem destruction. The extraction and transportation of fossil fuels often involve activities such as drilling, mining, and the construction of pipelines and infrastructure. These activities can result in habitat destruction, deforestation, soil erosion, and water pollution. The disruption of natural habitats threatens biodiversity, endangers species, and impacts the ecological balance.
Moreover, fossil fuel subsidies can create a false sense of energy security. By relying heavily on fossil fuels, countries become vulnerable to supply disruptions and price volatility. Environmental factors, such as droughts and natural disasters, can impact the availability and accessibility of fossil fuels, as seen with the Panama Canal disruptions due to prolonged droughts. This undermines long-term energy security and highlights the importance of transitioning to more sustainable and renewable energy sources.
Finally, the negative environmental impacts of fossil fuel subsidies disproportionately affect vulnerable communities, including those in developing countries. These communities often have limited access to clean energy alternatives and bear the brunt of the health and environmental consequences associated with fossil fuel use. Additionally, the social and economic inequalities exacerbated by fossil fuel subsidies can further marginalize these vulnerable groups, creating a cycle of environmental and social injustice.
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Frequently asked questions
In absolute terms, China contributes the most to global fossil fuel subsidies, with more than $2.2 trillion spent in 2022.
The US spent $757 billion on fossil fuel subsidies in 2022.
Qatar leads in fossil fuel subsidies per capita.
Fossil fuel subsidies are any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by energy consumers.
Governments subsidize fossil fuels to keep energy affordable for consumers. Fossil fuel subsidies can also protect citizens from variations in international energy prices.
