Source: The post Fossil fuel subsidies reshape global energy usage has been created, based on the article “How much in subsidies do fossil fuels receive?” published in “The Hindu” on 3rd February 2025.
UPSC Syllabus Topic: GS Paper3- Infrastructures- Energy
Context: The article explains fossil fuel subsidies and their impact. In 2022, explicit subsidies were $1.5 trillion, mostly for consumers. Some countries, especially oil producers, give large subsidies. The total, including hidden costs like pollution, reaches $7 trillion. Reducing subsidies requires better policies.
For detailed information on Energy Transition: Challenges and Solutions read this article here
What are fossil fuel subsidies?
- Fossil fuel subsidies make these fuels cheaper. Governments provide money to producers or consumers. Producers get funds to lower extraction costs. Consumers get funds to buy fuel at a lower price.
- In 2022, explicit subsidies for fossil fuels were $1.5 trillion. This amount equals the GDP of Russia or Australia.
- 80%of these subsidies went to consumers, while 20% went to production.
Why did fossil fuel subsidies increase in 2022?
In 2022, energy prices spiked due to Russia’s invasion of Ukraine. Gas prices increased by 400%. Governments helped people by putting price caps on energy. This increased subsidies, but they decreased again in 2023.
Which countries give the most subsidies?
Large fossil fuel producers give the highest subsidies. In 2021:
- Saudi Arabia, Turkmenistan, Libya, and Algeria gave over $500 per person.
- India gave only $3 per person, down from $9 in 2015.
- Europe, North and South America, and East Asia gave less than $100 per person.
- Africa and South Asia gave less than $20 per person.
Why do some sources say fossil fuel subsidies are $7 trillion?
- The $7 trillion figure includes both explicit and implicit subsidies.
- Explicit subsidies (18%): Includes consumer subsidies (14%) and producer subsidies (4%).
- Implicit subsidies (77%): These are hidden costs from fossil fuel use. Air pollution (30%): Causes health problems, Climate change (30%): Increases global warming, Road use impacts (17%): Includes traffic congestion and accidents.
How can governments reduce fossil fuel subsidies?
- Governments can take different steps:
- Reduce direct subsidies to producers and consumers.
- Introduce carbon or pollution taxes to reflect the true cost of emissions.
- Implement road taxes or congestion pricing to manage transport emissions.
- Reducing subsidies is difficult without cheap and clean energy alternatives. Removing them suddenly can lead to fuel poverty in some countries.
Question for practice:
Discuss what fossil fuel subsidies are and why they increased in 2022.
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