Fossil fuels subsidies removal

Valeria Costantini and Elena Paglialunga

Chapter 63 in Elgar Encyclopedia of Energy Economics, 2025, pp 240-244 from Edward Elgar Publishing

Abstract: Fossil fuel subsidies are defined as any government action that alters the cost of fossil-based energy resulting in higher prices for energy producers or lower prices for consumers. Consumer subsidies are designed to keep the prices paid by final demand below the market level, while producer subsidies operate to support firms by keeping the production costs below the market prices. From a climate policy perspective, such subsidies negatively impact the effectiveness of mitigation actions, making carbon-intensive production processes more competitive than cleaner ones. Two reasons explain the difficulty in removing these subsidies. First, since lower-income households allocate a relatively larger share of their budgets to energy consumption, keeping prices artificially low limits the risk of regressive impacts of high energy prices. Second, fossil-based large companies apply strong lobbying influence on government's decisions, slowing down subsidy reforms in public budget design.

Keywords: Climate Policy; Energy Price; Fossil Fuels Subsidy; Incentive Mechanism; Negative Externality; Overlapping Regulation (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035310364
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