The Politics of Fossil-Fuel Subsidies

Summary: governments spend staggering sums of money subsidizing fossil fuels, with many harmful consequences for public budgets, energy markets, and pollution. While there is widespread agreement among analysts that most of these subsidies serve no legitimate purpose, cutting subsidies has proved extremely difficult. This paper explores the politics of subsidy creation and reform and suggests some strategies for improving the odds that reformers will be politically successful. Subsidies exist often because they are the only reliable mechanism available to governments that are under pressure to provide benefits to politically well-organized groups. Not understanding the political economy of subsidy policies can prevent successful reform, and the report argues that successful subsidy reforms often require broader reforms and improvement in public administration to create mechanisms that can compensate political losers.