Fossil Fuel Subsidy Reform Explained: 10 questions you’ve always wanted to ask

This guide from the International Institute for Sustainable Development (IISD) explains the nature of fossil fuel subsidies, the challenges of reforming them, and the benefits of transitioning to targeted social protection and clean energy. It highlights the role of the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS) in fostering international cooperation and transparency to make these reforms politically and socially viable.

• Fossil fuel subsidies are widespread and costly, with the Fossil Fuel Subsidy Tracker reporting approximately USD 1.1 trillion in explicit subsidies in 2023. The International Monetary Fund (IMF) provides a higher estimate of over USD 7 trillion—roughly 7% of global GDP—when including unpriced health and climate costs.
• Reforming these subsidies is a highly effective method for reducing greenhouse gas emissions. The IPCC (2022) suggests such reforms could reduce CO2 emissions by 1%–4% and total GHGs by up to 10% by 2030, while the IMF (2023) estimates a 5% reduction in CO2 emissions by 2030.
• Contrary to the belief that subsidies protect the poor, they often disproportionately benefit high-income households because they consume more energy. Evidence indicates the top 20% of households can receive up to six times more in benefits than the poorest 20%. Targeted social protection, such as India's Ujjwala scheme, is presented as a more cost-effective alternative.
• Case studies demonstrate the fiscal and social benefits of reform: Indonesia saved approximately IDR 211 trillion (≈ USD 15 billion) by removing gasoline and diesel subsidies in 2014–2015; Italy's 2024 alignment of diesel and petrol excise duties is expected to generate EUR 1.1 billion over five years for local public transport.
• The Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS), launched at COP 28 and chaired by the Netherlands, helps member countries implement reform through the creation of national subsidy inventories, the establishment of Minimum Standards for these inventories, and the development of time-bound phase-out plans.

APA

Brnic,, J. K. (2025). Fossil Fuel Subsidy Reform Explained: 10 questions you’ve always wanted to ask. International Institute for Sustainable Development. https://www.iisd.org/articles/explainer/fossil-fuel-subsidy-reform-explained

Chicago

Brnic,, Jonas Kuehl,Aia. Fossil Fuel Subsidy Reform Explained: 10 questions you’ve always wanted to ask. International Institute for Sustainable Development, 2025. https://www.iisd.org/articles/explainer/fossil-fuel-subsidy-reform-explained.

Wikipedia

{{cite report |last1=Brnic, |first1=Jonas Kuehl,Aia |title=Fossil Fuel Subsidy Reform Explained: 10 questions you’ve always wanted to ask |publisher=International Institute for Sustainable Development |date=14 November 2025 |url=https://www.iisd.org/articles/explainer/fossil-fuel-subsidy-reform-explained |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{brnic2025fossil, author = {Brnic,, Jonas Kuehl,Aia}, title = {{Fossil Fuel Subsidy Reform Explained: 10 questions you’ve always wanted to ask}}, institution = {International Institute for Sustainable Development}, year = {2025}, month = nov, url = {https://www.iisd.org/articles/explainer/fossil-fuel-subsidy-reform-explained}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }