Challenges and Opportunities for the Reform of Fossil Fuel Tax Expenditures in Developing and Emerging Economies


Fossil fuels provide the vast majority of the world’s primary energy supply, as well as being the main feedstock for plastics. Most governments subsidize some fossil fuels, whether to increase domestic energy supply, support declining mining regions, or make fuels more affordable for industry, motor vehicles, or households. These subsidies can be problematic because, additional to their intended benefits, they impose large costs on society: directly through impacts on government budgets and indirectly by exacerbating the negative impacts of fossil fuels such as climate change and air pollution.

Estimates of the magnitude of fossil fuel subsidies range from USD 500 billion to USD 700 billion a year, depending on the prevailing price of crude oil. The largest category of subsidies is below-market pricing of fossil fuels, or “consumer price support”. The second-largest category is tax subsidies, or “tax expenditures” (TEs) – revenue forgone by governments arising from reductions in, exemptions from, or other deviations from a tax levied on fossil fuels producers or products.

In this discussion note the authors assess the challenges and opportunities for the reform of fossil fuel subsidies, with a particular focus on tax expenditures supporting the production or consumption of fossil fuels in emerging and developing economies.

A shorter version of this discussion note has been published as policy brief.