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

The document defines fossil fuel subsidies as mechanisms that price fuels below real costs, noting that explicit subsidies reached USD 1.1 trillion in 2023, while total estimates including climate and health costs exceed USD 7 trillion. It argues that these subsidies distort markets, encourage overconsumption, and undermine energy security by increasing vulnerability to global price shocks. The guide highlights that reform can reduce CO2 emissions by 1%–10% by 2030 and generate fiscal savings for reinvestment in clean energy. It notes that broad subsidies often disproportionately benefit high-income households, with the top 20% receiving up to six times more benefits than the poorest 20%. Examples of successful reforms are cited from Indonesia, India, and Italy. The document also details the role of COFFIS in improving transparency through national subsidy inventories and phase-out plans.

• Fossil fuel subsidies, which include direct budget transfers, tax breaks, and artificially low retail prices, result in fuels being priced below their real costs. In 2023, explicit subsidies totaled approximately USD 1.1 trillion, while the International Monetary Fund estimates the total, including unpriced health and climate costs, at over USD 7 trillion, or about 7% of global GDP.
• Reforming these subsidies is a highly cost-effective method for reducing greenhouse gas emissions. The IPCC suggests such reforms could reduce CO2 emissions by 1%–4% and total GHGs by up to 10% by 2030, while the IMF estimates a 5% reduction in CO2 emissions by 2030.
• Contrary to the belief that they protect the poor, broad fossil fuel subsidies primarily benefit the wealthy because high-income households consume more energy. Evidence indicates the top 20% of households can receive up to six times more in benefits than the poorest 20%.
• The Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS), launched at COP 28 and chaired by the Netherlands, supports member countries in creating national subsidy inventories, establishing minimum standards for these inventories, and developing time-bound phase-out plans.
• Specific national examples demonstrate the fiscal and social benefits of reform: Indonesia saved approximately USD 15 billion (IDR 211 trillion) by removing gasoline and diesel subsidies in 2014–2015; India replaced broad LPG subsidies with direct transfers to low-income women; and Italy's 2024 alignment of diesel and petrol excise duties is expected to generate EUR 1.1 billion over five years for public transport.

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} }