- Fossil fuel subsidies reached a record $7 trillion last year, equivalent to 7.1% of global GDP, due to government support during the pandemic and energy price spikes caused by Russia’s invasion of Ukraine.
- These subsidies contribute to air pollution and climate change.
- The majority of subsidies are implicit, as environmental costs are not reflected in fossil fuel prices.
- Removing subsidies and imposing corrective taxes would lead to significant reductions in carbon dioxide emissions, cleaner air, and increased government revenue.
- However, removing subsidies must be done carefully and accompanied by a comprehensive policy package that compensates vulnerable households and funds public goods such as education, healthcare, and clean energy.
- With global energy prices receding and emissions rising, it is the right time to phase out fossil fuel subsidies.
Source IMF
