Reform for Phasing Out Inefficient Fossil Fuel Subsidies in Latin America

The report argues that fossil fuel production subsidies in Colombia and Mexico are inefficient, as their associated environmental and value-added costs outweigh the benefits of investment. It proposes a definition of 'inefficient subsidies' that considers fiscal cost, environmental impact, and social targeting, and suggests redirecting funds to sectors like construction and agriculture to support a just energy transition.

• Fossil fuel subsidies in Latin America and the Caribbean (LAC) showed significant volatility, increasing from USD 29.5 billion in 2020 to USD 98.6 billion in 2022, before decreasing to USD 57.2 billion in 2023.
• In Colombia, the 'Subsidy for the Development of Oil Infrastructure in Strategic Areas' was identified as a priority for phase-out because it targets producers rather than vulnerable consumers. A cost-benefit analysis (2015-2023) found that for every dollar invested, USD 0.58 was lost due to the subsidy and value-added costs, rising to USD 0.73 when environmental costs are included.
• In Mexico, the 'Deferred Investment Projects in the Expenditure Register' (PIDIREGAS) was selected for phase-out as it represents a high fiscal cost (0.59% of GDP). Analysis for 2015-2023 indicates that for every dollar of investment, USD 0.33 is lost due to the subsidy, USD 0.60 when including value-added losses, and USD 0.77 when including environmental costs.
• The hydrocarbon sector's contribution to GDP is relatively low compared to its environmental impact, with environmental costs estimated at 1.7% of annual GDP in Mexico and between 1.18% and 1.59% of annual GDP in Colombia.
• Reallocating subsidy funds to other sectors could drive higher economic growth and employment. In Colombia, key opportunities exist in construction, water and sanitation, and agriculture. In Mexico, the electricity, construction, and manufacturing sectors are identified as high-potential recipients.

APA

Figueredo, P. D. O., Naranjo, S. B., Patiño, D. C. B., Zapata, D. F., & Mogollón, A. M. (2025). Reform for Phasing Out Inefficient Fossil Fuel Subsidies in Latin America. Transforma. https://transforma.global/wp-content/uploads/2025/07/250703-Summary-Subsidios.pdf

Chicago

Figueredo, Paula Daniela Osorio, Santiago Barbosa Naranjo, Diana Carolina Barba Patiño, Diego Fernando Zapata, and Ana María Mogollón. Reform for Phasing Out Inefficient Fossil Fuel Subsidies in Latin America. Transforma, 2025. https://transforma.global/wp-content/uploads/2025/07/250703-Summary-Subsidios.pdf.

Wikipedia

{{cite report |last1=Figueredo |first1=Paula Daniela Osorio |last2=Naranjo |first2=Santiago Barbosa |last3=Patiño |first3=Diana Carolina Barba |last4=Zapata |first4=Diego Fernando |last5=Mogollón |first5=Ana María |title=Reform for Phasing Out Inefficient Fossil Fuel Subsidies in Latin America |publisher=Transforma |date=July 2025 |url=https://transforma.global/wp-content/uploads/2025/07/250703-Summary-Subsidios.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{figueredo2025reform, author = {Figueredo, Paula Daniela Osorio and Naranjo, Santiago Barbosa and Patiño, Diana Carolina Barba and Zapata, Diego Fernando and Mogollón, Ana María}, title = {{Reform for Phasing Out Inefficient Fossil Fuel Subsidies in Latin America}}, institution = {Transforma}, year = {2025}, month = jul, url = {https://transforma.global/wp-content/uploads/2025/07/250703-Summary-Subsidios.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }