Home » Environment

IMF Report Reveals Massive Fossil Fuel Subsidies Worldwide

Despite global pledges, fossil fuel subsidies surged in recent years, revealing the true cost and challenge of transitioning to clean energy.

By Medha deb

Created on Sep 27, 2025

Despite global pledges, fossil fuel subsidies surged in recent years, revealing the true cost and challenge of transitioning to clean energy.

IMF Fossil Fuel Subsidies Report: A Snapshot of Global Energy Policy Failure

Fossil fuel subsidies remain a persistent dilemma, undermining international climate goals and distorting energy markets. The latest report from the International Monetary Fund (IMF) reveals that, despite years of promises to phase them out, countries around the world continue to funnel massive resources into supporting coal, oil, and gas. This article explores the scale, implications, and controversies surrounding fossil fuel subsidies, based on recent data and expert analysis.

The Scale of Fossil Fuel Subsidies: Surging Over Time

According to the IMF, global fossil fuel subsidies totaled $7 trillion in 2022, representing roughly 7.1% of global GDP. This marks a staggering $2 trillion increase since 2020, as governments responded to surging energy prices by ramping up consumer and supplier aid.

IMF defines subsidies as both explicit (direct government support, tax breaks) and implicit (failure to price environmental and health damages).
Despite international pledges, such as those made at G7 and G20 meetings, subsidies have continued to rise instead of declining.
The G7, among the world’s major economies, saw subsidies grow by 15% from $1.18 trillion in 2016 to $1.36 trillion in 2023.

What Are Fossil Fuel Subsidies?

Fossil fuel subsidies come in diverse forms:

Explicit subsidies: Direct financial support, price controls, and tax breaks granted to fossil fuel producers.
Implicit subsidies: The failure to tax or price fuels adequately for their environmental, health, or social costs—allowing air pollution, climate change, and public health burdens to go unaddressed.
Externalities: Indirect economic losses from pollution-related healthcare costs, ecosystem damages, and disaster responses.

Subsidy Category	Type	Description	Estimated US Cost (2022)
Underpriced Supply Cost	Direct	Fossil fuels sold below true cost due to government controls	$44 billion
Tax Breaks & Financial Support	Direct	Tax incentives, royalty relief, direct funding	$20 billion
Environmental Externalities	Indirect	Poorly accounted-for climate, health, and ecological harm	$500 billion
Foregone Tax Revenue	Indirect	Deductions and exemptions reducing taxes	$196 billion

In 2022, U.S. fossil fuel subsidies alone were estimated at $760 billion, illustrating the mix of direct and indirect support.

Global Trends and National Failures: Why Are Subsidies Rising?

Governments justify subsidies for various reasons: preventing energy price shocks, supporting jobs in fossil fuel sectors, and maintaining energy security. However, the IMF and climate advocates warn these policies are economically and environmentally counterproductive:

Energy price surges following global crises—like the COVID-19 pandemic and Russia’s invasion of Ukraine—triggered increased government intervention, leading to record-high subsidies.
Temporary price controls: Many countries, including Germany, used price brakes on gas and electricity, trimmed VAT, and issued industry relief packages—accounting for a large share of the recent subsidy jump.
Poor subsidy reform: Despite 2016 G7 pledges to phase out “inefficient” subsidies by 2025, most nations have failed to deliver, with Canada as an exception.

Impact on Climate Change and Health

The environmental and social costs of fossil fuel subsidies are severe:

They incentivize fossil fuel consumption, undermining international climate goals and delaying the transition to renewables.
Air pollution from fossil fuels contributes to millions of premature deaths each year and is linked to respiratory and cardiac health emergencies.
The true economic cost of subsidies includes not just direct spending but also hidden public health burdens, disaster response costs, and impaired innovation in clean energy.

Who Pays for Fossil Fuel Subsidies?

The burden ultimately falls on taxpayers, through:

Direct funding from national budgets.
Deferred costs—such as higher healthcare spending and climate adaptation expenses.
Reduced investment in cleaner, job-creating industries due to diversion of funds to fossil fuel companies.

Regional Insights: G7 and G20 Performance

Among G7 nations, the United States is the largest fossil fuel subsidizer, followed by Japan and Germany.
Canada is the only G7 member to have reduced its subsidies since 2016.
In 2022, explicit fossil fuel subsidies across the G20 quadrupled to $1 trillion—a reversal from past years’ trends.

Why Is Ending Subsidies So Difficult?

Removing fossil fuel subsidies is widely considered both economically and environmentally necessary, but the path is complex:

Political barriers: Governments fear voter backlash from increased fuel and energy prices.
Lobbying power: Fossil fuel industries wield significant influence, making reform politically challenging.
Short-term economic impacts: Immediate removal may disrupt employment and energy affordability without adequate transition policies.
Lack of transparency: Many subsidies are hidden or implicit, making them harder to quantify and reform.

The Role of Explicit vs Implicit Subsidies

IMF reports highlight that most subsidies are implicit, resulting from the failure to apply taxes and fees for environmental and health costs. These implicit subsidies make fossil fuels appear cheaper than they truly are, perpetuating pollution and climate inaction.

Policy Solutions and Reform Strategies

Better transparency: Comprehensive accounting and reporting of all forms of subsidies.
Carbon pricing: Imposing taxes that reflect the true environmental cost of fossil fuel use.
Reform of harmful incentives: Shifting public support away from fossil fuels and towards renewables, energy efficiency, and sustainable practices.
International cooperation: Aligning climate, trade, and energy policies to collectively phase out subsidies.

The Consequences of Continued Subsidization

As long as subsidies persist, the journey to a clean energy future will remain uphill:

Fossil fuel subsidies keep polluting industries afloat, hampering investment in renewable energy.
They increase the risk of stranded assets as countries move towards net-zero targets.
Climate disasters, rising healthcare costs, and economic instability are compounded by artificially low fossil fuel prices.

Frequently Asked Questions (FAQs)

Why do governments continue to subsidize fossil fuels despite climate pledges?

Governments cite energy security, price stabilization, and political pressures as reasons for continued support, even though most experts argue these justifications are outweighed by environmental and health damages.

How do fossil fuel subsidies compare to support for renewables?

Global subsidies for fossil fuels vastly outweigh those for renewables, creating an uneven playing field and slowing the transition to cleaner energy sources.

What is the difference between an explicit and implicit subsidy?

Explicit subsidies involve direct governmental financial support or tax breaks. Implicit subsidies include the social and environmental costs left out of fossil fuel pricing, such as pollution and health damages.

What would happen if all fossil fuel subsidies were eliminated?

Phasing out subsidies would likely result in higher fuel prices, reduced pollution, and accelerated growth in alternative energy sectors. Initial economic adjustments could be significant, but long-term benefits include cleaner air, better health, and improved climate resilience.

Which countries are leading subsidy reforms?

Canada stands out as a G7 country with a modest subsidy reduction, while the majority—including the U.S., Japan, and Germany—have increased fossil fuel support in recent years.

Conclusion: A Call for Ambitious Action

The IMF’s latest figures underscore the vast gap between international climate rhetoric and real-world action. With $7 trillion dedicated to fossil fuels in 2022, governments must urgently align their financial policies with climate commitments. Eliminating fossil fuel subsidies is not only vital for fighting climate change, but also for reorienting economies towards sustainable, resilient futures where public health and environmental stewardship take precedence over short-term interests.

References

Author

medha deb

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

Read full bio of medha deb