Energy Subsidies and Market Distortions
How trillions in energy subsidies distort markets, slow the energy transition, and entrench political power.
The Scale of Energy Subsidies
Global fossil fuel subsidies are enormous. The IMF estimated that fossil fuel subsidies, including both direct payments and the failure to price environmental damage, reached $7 trillion in 2022 -- roughly 7.1% of global GDP. Even counting only explicit subsidies (direct payments and tax breaks), the figure exceeds $1 trillion annually. The largest subsidizers include China, the US, Russia, India, and the European Union.
These subsidies take many forms: below-market fuel prices in oil-producing states, tax breaks for fossil fuel exploration and production, regulated electricity prices below cost, and the failure to charge for carbon emissions. In many developing countries, fuel subsidies are among the largest items in government budgets, consuming resources that could fund health, education, or clean energy.
