Fossil fuel subsidies
Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
Fossil fuel subsidies are government measures that make coal, oil or gas cheaper to produce or use. They strain the budget and encourage more burning of fossil fuels. That is why they are described as a negative carbon price: they reward pollution instead of charging for it. The IMF separates two kinds:
- Explicit subsidies: fuel is sold below its cost.
- Implicit subsidies: the damage fuel causes, such as pollution and climate harm, is not priced.
Example
India decontrolled petrol prices in 2010 and diesel prices in 2014, so both now broadly follow market prices. India also moved the LPG subsidy to direct benefit transfer (DBT) under PAHAL (2015). Under DBT, the subsidy goes into the consumer's bank account instead of the fuel price being kept artificially low.
Don't confuse with
- Green tax: raises the cost of polluting goods. A fossil fuel subsidy lowers it, so the two work in opposite directions.
Related concepts
- Internalisation of externalities
- Carbon pricing
- Green tax
- Social cost of carbon
- Internal carbon price
- Cap-and-trade
- Carbon market
- Compliance carbon market
- Voluntary carbon market
- Carbon credit