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Fossil fuels are the _leading driver of climate change_, yet they are still heavily subsidized by governments around the world. Although many countries have explicitly _promised to reduce

fossil fuel subsidies_ to combat climate change, this has proven difficult to accomplish. As a result, fossil fuels remain relatively inexpensive, and their use and greenhouse gas emissions 

_continue to grow_. I work in _environmental and energy law_ and have studied the fossil fuel sector for years. Here’s how fossil fuel subsidies work and why they’re so stubborn. WHAT IS A

SUBSIDY? A subsidy is a financial benefit given by a government to an entity or industry. Some subsidies are relatively obvious, such as publicly funded crop insurance or research grants to

help pharmaceutical companies develop new drugs. Others are less visible. A _tariff on an imported product_, for example, can subsidize domestic manufacturers of that product. More

controversially, some would argue that when a government _fails to make an industry pay for damage_ it causes, such as air or water pollution, that also amounts to a subsidy. Subsidies,

especially in this broader sense, are widespread throughout the global economy. Many industries receive benefits through public policies that are denied to other industries in the same

jurisdiction, such as _tax breaks_, relaxed regulations or trade supports. Governments employ subsidies for political and practical reasons. Politically, subsidies are useful for striking

bargains or shoring up political support. In democracies, they can mollify constituencies otherwise unwilling to agree to a policy change. The 2022 Inflation Reduction Act, for example,

squeaked through Congress by _subsidizing both renewable energy and oil and gas production_. Practically, subsidies can boost a promising young industry such as _electric vehicles_, attract

business to a community or help a mature sector survive an economic downturn, as the _auto industry bailout_ did in 2008. Of course, policies can outlive their original purpose; some of

today’s petroleum subsidies can be _traced to the Great Depression_. HOW ARE FOSSIL FUELS SUBSIDISED? Fossil fuel subsidies take many forms around the world. For example: * In _Saudi

Arabia_, fuel prices are set by the government rather than the market; _price ceilings_ subsidize the price citizens pay for gasoline. The cost to state-owned oil producers there is offset

by oil exports, which dwarf domestic consumption. * _Indonesia_ also caps energy prices, then compensates state-owned energy companies for the losses they bear. * In the United States, oil

companies can _take a tax deduction_ for a large portion of their drilling costs. _Other subsidies are less direct_, such as when governments underprice permits to mine or drill for fossil

fuels or fail to collect all the taxes owed by fossil fuel producers. Estimates of the total value of global fossil fuel subsidies vary considerably depending on whether analysts use a broad

or narrow definition. The Organization for Economic Cooperation and Development, or OECD, _calculated the annual total_ to be about US$1.5 trillion in 2022. Tche _International Monetary

Fund reported_ a number over four times higher, about $7 trillion. WHY DO ESTIMATES OF FOSSIL FUEL SUBSIDIES VARY SO DRAMATICALLY? Analysts disagree about whether subsidy tabulations should

include environmental damage from the extraction and use of fossil fuels that is not incorporated into the fuel’s price. The IMF treats the costs of global warming, local air pollution and

even traffic congestion and road damage as implicit subsidies because fossil fuel companies don’t pay to remedy these problems. The OECD omits these implicit benefits. But whichever

definition is applied, the combined effect of national policies on fossil fuel prices paid by consumers is dramatic. Oil, for example, is traded on a global market, but the price per gallon

of _petrol varies enormously_ around the world, from about 10 cents in Iran, Libya and Venezuela – where it is heavily subsidized – to over $7 in Hong Kong, the Netherlands and much of

Scandinavia, where fuel taxes counteract subsidies. WHAT IS THE WORLD DOING ABOUT FOSSIL FUEL SUBSIDIES? Global leaders have acknowledged that subsidies for fossil fuels undermine efforts to

address climate change because they make fossil fuels cheaper than they would be otherwise. In 2009, the heads of the G20, which includes many of the world’s largest economies, _issued a

statement_ resolving to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.” Later that same year, the governments of the

Asia-Pacific Economic Cooperation forum, or _APEC, made an identical pledge_. In 2010, 10 other countries, including the Netherlands and New Zealand, formed the _Friends of Fossil Fuel

Subsidy Reform_ group to “build political consensus on the importance of fossil fuel subsidy reform.” Yet these commitments have scarcely moved the needle. A major _study of 157 countries_ 

between 2003 and 2015 found that governments “collectively made little or no progress” toward reducing subsidies. In fact, the OECD found that total global subsidies nearly doubled in both

2021 and 2022. SO WHY ARE FOSSIL FUEL SUBSIDIES HARD TO ELIMINATE? There are various reasons fossil fuel subsidies are hard to eliminate. Many subsidies directly affect the costs that fossil

fuel producers face, so reducing subsidies tends to increase prices for consumers. Because fossil fuels touch nearly every economic sector, rising fuel costs elevate prices for countless

goods and services. Subsidy reform tends to be broadly felt and pervasively inflationary. And unless carefully designed, subsidy reductions can be regressive, forcing low-income residents to

spend a larger percentage of their income on energy. So, even in countries where there is widespread support for robust climate policies, reducing subsidies _can be deeply unpopular_ and

may even _cause public unrest_. The 2021-22 spike in fossil fuel subsidies is illustrative. After Russia’s invasion of Ukraine, _energy prices surged throughout Europe_. Governments were

quick to provide aid for their citizens, resulting in _their largest fossil fuel subsidies_ ever. Forced to choose between climate goals and affordable energy, Europe overwhelmingly chose

the latter. Of course, economists note that increasing the price of fossil fuels can lower demand, reducing emissions that are driving climate change and harming the environment and human

health. Seen in that light, price spikes present an opportunity for reform. _As the IMF noted_, when prices recede after a surge, it “provide[s] an opportune time to lock in pricing of

carbon and local air pollution emissions without necessarily raising energy prices above recently experienced levels.” _This article is republished from_ The Conversation _under a Creative

Commons license. Read the original article._