Experience has shown that fossil fuel consumer subsidy reforms are most successful when introduced during periods of low prices — yet too often, these moments are missed. With global oil prices currently low, governments have a unique window to reform fossil fuel subsidies with minimal disruption to consumers and businesses.
We spoke with expert Vance Culbert about why right now is the time to act, what practical steps governments can take, and how forward-looking countries can lead the way.
What’s happening with global oil and gas prices right now?
We’ve seen a very rapid drop in global oil prices over the past days, with West Texas Intermediate (WTI) — one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude — dropping below USD 60/barrel. Brent has also declined to multi-year lows. This is due to a couple of factors. One is the crash of the stock markets following the US administration’s announcement of tariffs that led to revisions of growth forecasts. The second is the easing of OPEC’s production quota system, leading to increased oil availability in global markets while there are concerns about decreasing future demand. This combination of factors has led to the lowest oil prices we’ve seen since COVID-19. Not all of these have yet been passed through to the pump, which typically happens with a short time lag.
What makes this moment the perfect situation to reform fossil fuel subsidies?
Fossil fuel subsidy reform can meet a lot of pushback if not done properly because energy prices affect the purchasing power of households and industrial competitiveness. Fossil fuel subsidies hit a record USD 1.7 trillion in 2022, when the war in Ukraine and the subsequent cut of oil and gas supplies to Europe pushed the prices to new highs. Governments responded by trying to provide support to households and industries. Subsidies came back down with lower oil prices to USD 1.1 trillion in 2023, still the second highest on record. These are unsustainable levels of subsidies, particularly at a time when many governments face strong deficits, leading to broad budget cuts in many sectors.
With the current drop in the price of oil, now is an ideal moment to scale back subsidies with minimal disruption to households and industries.
There is substantial research showing that the most successful subsidy reforms — those that are broadly accepted and are not rolled back with the next oil price spike — have been implemented during periods of low prices and phased in gradually, enabling a smoother transition and allowing fossil fuel prices to more closely reflect markets. This approach means that consumers continue paying prices similar to what they were before prices came down. Communication campaigns are important to make people aware that future price increases are due to global fluctuations and that alternative support options are available for those most in need.
How should governments start this process? What are the first steps to make the reform happen?
Fossil fuel subsidy reform involves several steps, starting with political will. It requires governments to make a clear and committed decision to pursue reform.
Moreover, it requires a whole-of-government approach, involving key ministries such as finance, industry, and energy. Ministries of social protection and the environment also have an important role to play.
Careful planning is essential. The process should begin with a comprehensive inventory to ensure the government fully understands the scope and scale of existing subsidies. This should be followed by an analysis of the likely impacts of reform on both households and industries, allowing for the design of targeted support measures for the most vulnerable groups as subsidies are phased out.
Related Articles: How the G7 Can Advance Action on Fossil Fuel Subsidies in 2025 | How the UNFCCC Can Tackle Fossil Fuel Subsidies at COP28 and Beyond | Hurting People and Hurting the Planet: Fossil Fuel Subsidies | How Canada Ended Fossil Fuel Subsidies | The Cost of Fossil Fuel Reliance | Are the G7 Countries Sabotaging Their Own Climate Efforts?
Some governments may be better positioned than others to undertake fossil fuel subsidy reform now, while prices remain relatively low. But what can any government do to initiate reform and begin seeing benefits quickly?
There are several practical steps to consider. First, temporary subsidy measures introduced during the last price spike can be phased out more swiftly. Governments that already have regular fuel price review mechanisms in place can begin shifting from price controls toward a more market-based approach. This helps prevent subsidies from automatically resuming when prices rise again.
This moment also presents an opportunity to adopt more effective and targeted support mechanisms—such as direct cash transfers to vulnerable households—rather than continuing to subsidize fossil fuels across the board.
What can the most forward-leaning governments do differently in the current context?
One thing is to engage in progressive groups such as the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS).
For some COFFIS members, the deadline to submit reform action plans before COP30 is fast approaching. This presents a prime opportunity to build political momentum, enact meaningful reforms, and take advantage of the current period of lower fossil fuel prices.
Countries considering subsidy reform are encouraged to engage with the COFFIS coalition and its secretariat, hosted by IISD, which offers technical support and facilitates the sharing of best practices. The benefits of reform are much broader than reduced incentives to burn oil, gas, and coal—they also help governments to expand fiscal space, strengthen energy security, and ensure a level playing field for all energy sources including renewables and energy efficiency.
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This article was originally published by the International Institute for Sustainable Development (IISD) and is republished here as part of an editorial collaboration with the IISD.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com — Cover Photo Credit: WANG Jared.
