Fossil fuel subsidies have increased rapidly in recent years as governments continue to set fuel prices at levels that do not reflect supply costs and the environmental damage from consumption.

In 2022, total fuel subsidies worldwide amounted to about $7tn, equivalent to 7.1% of global gross domestic product (GDP) and up by about 18.3% from the previous year, according to an IMF working paper published in August. 

Nearly half of global fuel subsidies in 2022 were extended in east Asia and the Pacific. In absolute terms, China contributes by far the most to global fuel subsidies, amounting to more than $2.2tn last year, IMF figures show. It was followed by the US ($757bn), Russia ($421bn), India ($346bn) and Japan ($310bn). 

Total fossil fuel subsidies are calculated by multiplying fuel consumption with the difference between retail prices and efficient prices, which take into account supply costs like labour and raw materials, environmental damage and other externalities related to fuel use like road congestion.

The vast majority (82%) of 2022 fuel subsidies were implicit, meaning prices which forego consumption taxes and/or do not account for the environmental costs of fuel use. The remainder of the subsidies were explicit, meaning they undercharge for the supply costs of fuel.

Since 2020, total fuel subsidies have risen significantly in all regions except for North America, and almost doubled in Europe due to subsidised natural gas and electricity in the wake of the war in Ukraine. In the Middle East and North Africa region, the increase has been mainly driven by subsidised oil products. 

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The authors of the IMF working paper — Simon Black, Antung Liu, Ian Perry and Nate Vernon — note that fossil fuel prices “are priced incorrectly” in most countries. This is despite recent surges in prices reinforcing the case for a rapid transition away from fossil fuels.

The small gas-rich country of Qatar extended by far the highest total fuel subsidies per capita in 2022, spending more than $14,100 per person. The majority of Qatar’s 2022 fuel subsidies were given for natural gas and equivalent to about 19% of its GDP.

After Qatar, three other oil producing countries in the Gulf — Bahrain, Saudi Arabia and Kuwait — led the 170 countries with data compiled by the IMF. Saudi Arabia had by far the highest subsidies of any of the G20 major economies at almost $7000 per person, with the majority going to oil products. It was followed by South Korea, Russia and Japan. 

In the coming years, explicit subsidies are projected to decline to 0.6% of global GDP by 2030, as international energy prices recede from their peak levels, according to IMF estimates. However, implicit subsidies are predicted to rise progressively over time from 5% of GDP in 2020 to 6.1% in 2030.

“Although the energy intensity of GDP is generally falling over time, emerging market economies account for a rising share of global fuel consumption and local environmental costs per unit of coal use tend to be larger in these countries,” reads the report.

The IMF authors advocate for fuel price reform and non-pricing policy mechanisms like emission standards and clean technology subsidies. Global full fuel price reform would avert about 1.6 million premature deaths from air pollution per year by 2030 and raise revenues amounting to 3.6% of global GDP, according to IMF estimates.

“These revenues could be used to cut more burdensome taxes such as on those labour, help with debt sustainability, or fund productive investments,” read the report.