Governments implementing consumer fossil fuel subsidies in response to rising energy prices are enacting the “worst energy policy in the world,” according to energy policy experts Paasha Mahdavi and Michael Ross writing in an editorial in Science. These subsidies, often adopted following increasing fossil fuel prices due to the U.S.-Israeli war on Iran, drain government budgets, worsen air pollution, and discourage renewable energy investment while proving extraordinarily difficult to eliminate once established.
Why Consumer Fossil Fuel Subsidies Fail Governments
Fossil fuel subsidies place a heavy burden on public finances. Governments typically finance the gap between market costs and consumer prices through alternative means, including increased taxes, additional borrowing, or reduced spending elsewhere. According to Mahdavi, an associate professor at the University of California, Santa Barbara, and Ross, a professor at the University of California, Los Angeles, these policies drive worsening air pollution and stall transitions to green energy.
Data cited by the authors show that reform efforts rarely succeed. Out of roughly 130 subsidy reforms attempted across the 21 biggest subsidizing nations between 2016 and 2023, 70% collapsed within a single year. More than 90% disappeared within three years. Ross noted by email that successful reforms are exceptionally rare, pointing to Mexico as a rare exception that successfully dismantled its subsidies around 2017 following a long and convoluted process.
Did You Know?
Drivers confront gasoline prices daily on public signs, making them uniquely sensitive to fuel price fluctuations compared to electric bills or the price of bread. This constant visibility is a major reason why governments struggle to remove fuel subsidies once implemented.
The Structural Trap of Daily Gas Prices
Political resistance stalls subsidy rollbacks because consumers notice pump prices immediately. Unlike utility bills paid monthly, gasoline prices confront drivers every day of the week in public locations. This daily visibility makes politicians deeply reluctant to absorb the political fallout of rising fuel costs.
While nations like Ethiopia, Norway, and Uruguay are aggressively transitioning away from fossil fuels, Ross noted that this systemic shift takes time. Policymakers must focus on reducing overall demand through targeted support for electric vehicles, solar installations, wind power, and other renewable sources.
Targeted Alternatives to Blanket Price Caps
Blanket fuel subsidies—such as broad price caps, fuel tax cuts, and fixed pump prices—rank among the least effective ways to spend public money. Jonas Kuehl, an energy researcher at the International Institute for Sustainable Development who was not part of the editorial, explained by email that these broad measures disproportionately benefit businesses and high-fuel consumers rather than impoverished households, all while weakening incentives to conserve energy.
While protecting citizens from sudden economic shocks remains essential, Kuehl noted that open-ended subsidies fail, whereas time-limited fuel subsidies for low-income households or essential transport services can sometimes be justifiable. Innovative alternatives are already emerging globally. Kuehl pointed to Indonesia implementing work-from-home Fridays for civil servants and the Netherlands launching a monthly off-peak rail pass as concrete strategies to curb fuel consumption without relying on blanket subsidies.
Pro Tip for Policymakers
Instead of deploying broad price caps that drain budgets and benefit high-volume fuel consumers, governments can implement targeted, time-limited support for vulnerable households alongside demand-reduction initiatives like remote work policies and affordable public transit.
Frequently Asked Questions
Why are consumer fossil fuel subsidies considered harmful?
Experts argue they drain government budgets, worsen air pollution, discourage investments in renewable energy, and disproportionately benefit high-fuel consumers rather than low-income households.
Why are fuel subsidies so difficult for governments to remove?
Gasoline prices are posted publicly and confronted by drivers daily, making consumers acutely sensitive to price increases and creating severe political resistance to reform.
What are some effective alternatives to blanket fuel subsidies?
Researchers suggest time-limited support for low-income households, investments in electric vehicles and renewables, and demand-side measures such as remote work days for civil servants and discounted public transit passes.
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