The IEA has been measuring fossil-fuel subsidies in a systematic way for more than a decade. The analysis performed by the World Energy Outlook is aimed at demonstrating the impact of fossil-fuel subsidy removal for energy markets, climate change and government budgets.
Energy Subsidies by Country, 2016 (Million USD)
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The IEA estimates subsidies to fossil fuels that are consumed directly by end-users or consumed as inputs to electricity generation. The price-gap approach, the most commonly applied methodology for quantifying consumption subsidies, is used for this analysis. It compares average end-user prices paid by consumers with reference prices that correspond to the full cost of supply (more information on the methodology here).
The value of global fossil-fuel consumption subsidies in 2016 is estimated at around USD 260 billion, lower than the estimate for 2015, which was close to USD 310 billion. The decrease in the value largely reflects lower international energy prices of subsidised fuels since mid-2014, as the gap between international benchmark and end-user prices is closed by decreased international prices of energy, but it also incorporates the impact of pricing reform. Electricity subsidy became the largest at $ 107 billion and cover 16% of global electricity use. Oil subsidies accounted for 40% of the total, or nearly USD 105 billion, covering an estimated 11% of global oil consumption. Natural gas subsidies were also significant, amounting to around USD 50 billion, affecting the price paid for 22% of gas consumption. Coal subsides are relatively small, at USD 2 billion in 2016.
In addition to the work in the World Energy Outlook, the IEA has provided input to the G-20 and APEC since 2009, when G20 leaders took a major step toward reforming energy subsidies and committed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”, the IEA has provided input to the G-20 and APEC in support of their commitments.
Many countries are now pursuing reforms, but steep economic, political and social hurdles will need to be overcome to realise lasting gains. The latest reforms are summarized here.