Value of Fossil Fuel Subsidies Declines; National Bans Emerging

Global fossil fuel consumption subsidies fell to $312 billion in 2009 from $558 billion in 2008, a decline of 44.1 percent.1 The reduction is due primarily to changes in international energy prices as well as in domestic pricing policies and demand, rather than because the subsidies themselves were curtailed. The number also does not include fossil fuel production subsidies that aim at fostering domestic supply, which are estimated at an additional $100 billion globally per year.2

Fossil fuel consumption subsidies include public aid that directly or indirectly lowers the price for consumers below market price. The International Energy Agency (IEA) defines energy subsidies as “any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers.”3 Common means of subsidizing energy include trade instruments, regulations, tax breaks, credits, direct financial transfers like grants to producers or consumers, and energy-related services provided by the government, such as investments in energy infrastructure or public research.4 Many observers believe that fossil fuel subsidies should be phased out because they reduce the competitiveness and use of cleaner, alternative energy sources .

The energy sources that are most heavily subsidized are unquestionably oil products ($312 billion in 2008) and natural gas ($204 billion in 2008).5 Coal received $40 billion.6 (See Table 1 and Figure 1.) In countries that belong to the Organisation for Economic Co-operation and Development (OECD), production subsidies are by far the most prevalent form of subsidization. In other countries, subsidies are more likely to go to consumers. A phaseout of subsidies of either kind will most strongly affect producing countries in the Middle East, Russia, and parts of Asia.7

Vital Signs Trend Fossil Fuel Subsidies Figure 1

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