Fossil fuel subsidies in the G20 reached USD 1 trillion in 2022, over four times the amount provided in 2021. This was largely due to a dramatic expansion in consumer support in response to peaking fossil fuel prices. The largest category of consumption subsidies was “price support”: governments fixing retail fossil fuel prices below the international market price. Below-market pricing was more common in G20 emerging economies, where it created large holes in government and SOE budgets, either due to direct spending or foregone revenue. 

Even when fuels were sold above international market prices, G20 governments (mostly developed) provided large subsidies to reduce energy bills for transport fuels, electricity, and heating. Germany, France, and Italy alone provided USD 213 billion in fossil fuel crisis support in 2022. Many of these measures were temporary, but not all were targeted. 

Helping households and businesses during an energy crisis is understandable and necessary, but there are better ways to do it than subsidizing fossil fuels, which keeps consumers locked into emissions-intensive, polluting, and price-volatile energy sources (as outlined in the policy insight section below). Shifting support from fuels to people is fundamental for the sustainable implementation of G20 governments’ pledges to phase out fossil fuel subsidies. 

Production subsidies may make up a small share of total support, but their impact should not be underestimated. Governments typically design production subsidies so that a small amount of public spending will crowd in much larger volumes of private capital investment in the exploration and development stages of fossil energy projects, encouraging more investment than would otherwise be the case. As such, these subsidies are problematic because they influence larger private investment flows, lock in higher fossil fuel production and emissions, and take up scarce fiscal resources that are needed to catalyze investments in clean energy transition solutions. Further, in some countries, production subsidies can be several times higher than consumption subsidies—such as in Argentina in 2021. 

Actual production subsidies are likely to be significantly larger than stated here for two reasons. First, poor transparency means that many subsidies are not documented or quantifiable. Second, the source of the data (the Organisation for Economic Co-operation and Development (OECD) inventory) is conservative, as some tax expenditures and many subnational subsidies are not included. Several independent estimates at the national level find higher amounts of production subsidies, such as in Canada, Italy, and Brazil.

SOEs dominate the energy landscape in many G20 countries, particularly emerging economies. Their decisions—influenced by their governments—can shape the domestic energy market, with impacts on jobs, energy access, government budgets, and private sector investments. Fossil fuel SOEs (coal, oil and gas producers, and suppliers of fossil-generated electricity) invested USD 322 billion in 2022 in new capital expenditure (capex)—more than the 2012–2021 average in real terms. Such investments are a massive down payment on new fossil production, GHG emissions, and pollution. And they are increasing: national oil and gas companies have announced higher planned capital investment on upstream activities in 2023 on the back of high profits in 2022. This is starkly at odds with the latest available climate science, with the IEA having already declared in 2021 that there could be “from today, no investment in new fossil fuel supply projects.”

SOEs can play a key role in achieving net-zero targets, particularly in emerging economies, but they need to shift investments now. There are signs of diversification by some energy SOEs. The IEA identified around 50 national oil companies globally that have either invested in renewable power or plan to do so. However, investments are currently low, with less than 2% of upstream capex by oil and gas companies (public and private) in 2022 channelled into renewable power. For the SOEs we surveyed, around 13% (7 out of 56) indicated in their annual reports that they had invested in renewable energy. However, poor transparency makes quantifying this trend difficult because many SOEs invest through subsidiaries or do not disaggregate their capex.

G20 governments support the global fossil fuel industry through international aid, export credit support, and concessional financing, such as equity, grants, loans, and loan guarantees. International public finance from G20 governments to coal, oil, and gas averaged USD 50 billion per year from 2019 to 2021 (this includes lending to non-G20 countries). International public financing locks countries further into reliance on fossil fuels and hinders their ability to achieve their nationally determined contributions and long-term climate and clean energy targets, compounding local environmental impacts, such as air pollution. Data was not yet available for 2022; therefore, we assumed the 2019–2021 average for 2022 for the chart above and for the total public financial support estimates for 2022. The sections below discuss trends up to 2021.   

Average international public financing for fossil fuels in the 2019–2021 period decreased by 26% relative to the 2016–2018 average. Three quarters of the drop was driven by fossil fuel exclusion policies for international public financing coming into effect, including by the United Kingdom and coal power exclusions by China and the OECD Export Credit Arrangement. On the other hand, many G20 countries (Germany, Italy, Japan, Mexico, Saudi Arabia, South Africa, and the United States) all increased the amount of international public finance when comparing the average from 2016 to 2018 with the average from 2019 to 2021. Around USD 6 billion of the decrease has no clear driver. Two possible explanations are 1) risk perception surrounding fossil fuel infrastructure projects and 2) COVID-19 fallout—including project delays, broader recovery spending packages, and fluctuations in global supply chains.

Over this same period, clean energy finance increased only slightly from an annual average of USD 27 billion from 2016 to 2018 to USD 29 billion from 2019 to 2021. Fossil financing was still nearly four times greater than the USD 13 billion in support to clean energy averaged over 2019–2021. 

Japan, Canada, China, and Korea were the four largest providers of international public finance for fossil fuels (in absolute USD terms), providing USD 10.6 billion, USD 8.5 billion, USD 6.7 billion, and USD 7.3 billion, respectively, on average per year between 2019 and 2021. Oil and gas were the most common fuels supported (88% between 2019 and 2021). By institution, export credit agencies were the most carbon-intensive financiers, providing more than seven times as much support for fossil fuels than for clean energy over 2019– 2021 (learn more at OCI).

The tide of international public finance is turning, with 41 countries and public finance institutions having now signed the Glasgow Statement on International Public Support for the Clean Energy Transition. Signatories (including seven G20 members) have committed to ending their international public finance to fossil fuels and fully prioritize support for clean energy within a year of signing. More than half of the signatories with significant international financing have implemented their Glasgow commitment with integrity, including Canada, France, and the United Kingdom. However, several developed G20 countries have not yet delivered on implementation: Italy’s policy is not aligned with the Glasgow Statement, nor is Germany’s draft policy, and the United States has not published its regulation. These countries are among the most responsible for historical CO2 emissions and should take greater responsibility for preventing further emissions by shifting financing from fossil fuels to clean energy.

Burning fossil fuels has powered industrialization and improved standards of living, but we now understand that these fuels also impose huge costs on society, notably health costs associated with air pollution and damage brought by climate change. The International Monetary Fund has estimated these costs at around USD 5 trillion per year. Fossil fuel taxes are an important way to reflect social costs in retail prices, generate revenue to help address the impacts and finance the transition, and encourage consumers and investors to switch to cleaner alternatives. 

Thirteen G20 governments have an explicit carbon pricing instrument in place, either a carbon tax or an ETS. Together, these covered 49% of all energy-related CO2 emissions in G20 countries and generated revenue of around USD 100 billion in 2021. However, explicit carbon prices are still, on average, very low compared to the levels needed to address climate change (see below). Across the G20 countries, the average ETS price was only USD 3.2 per tCO2e, and the average carbon tax was below USD 1.05 per tCO2e in 2021.

Other consumer fuel taxes also contribute to retail prices and affect consumer behaviour. Excise taxes are typically applied to harmful or luxury goods. Adding fuel excise taxes to explicit carbon prices lifts the G20 “effective carbon rate” to an average of USD 20 per tCO2e. However, there is a broad range of effective carbon rates among members (see Figure 5). 

To limit the average global temperature increase to 1.5°C, an average carbon price of USD 100 per tCO2e is needed by 2030. The International Monetary Fund has proposed that large emitters adopt a carbon tax floor to support the Paris Agreement goals. The proposal suggests different possible rates for the carbon price floor and notes the principle of common but differentiated responsibilities based on historical emissions and development status. One option proposed is a floor of USD 75 for advanced economies, USD 50 for high-income emerging economies (e.g., China), and USD 25 for low- and middle-income emerging economies (e.g., India). 

If G20 countries were to immediately raise their current effective carbon rates to the relevant carbon tax floor for their country (between USD 25 and USD 75 per tCO2), the total revenue raised across the G20 would be USD 927 billion per year (until carbon emissions fall in response to price signals from the tax; see the accompanying Methodology Note for details). This simple calculation shows the significant potential for carbon taxation to raise revenue to finance a just transition when revenues are used for social welfare, targeted energy access, and clean energy development while sending price signals to consumers and investors to decarbonize. Falling energy prices are an opportune time to increase carbon and excise taxes, as this can be done without raising final consumer prices relative to those recently experienced.

G20 governments have ramped up financial commitments for renewable energy in response to the COVID-19 economic recovery and climate and energy security goals, as well as to attract clean energy industrial development. In the 3 years between Q2 2020 and Q2 2023, G20 governments announced a total of USD 265 billion in new subsidies for renewable electricity generation (an average of USD 88 billion per year). This funding includes commitments that will be spent over several years. While positive, the renewable subsidies are dwarfed by subsidies for fossil fuels, which were over USD 1.4 trillion in the 3 years from 2020 to 2022. 

Subsidies for renewables were concentrated in a few countries that are expected to attract around 80% of clean energy investment in 2023 (China, European Union members, and the United States). Large new subsidies could divert investment from the Global South if they include stringent local content provisions and other barriers to the use of imported components. Investment competition and subsidies are not good for the climate if they only result in shifting the location of planned or existing investments. The G20 has a role to play in helping forge international consensus on what constitutes appropriate behaviour in subsidizing climate-related technologies, taking into account energy security and development priorities. This consensus should include distinguishing between market-correcting and market-distorting subsidies and mechanisms that enable developing countries to benefit from the booming clean energy industry. The G20 can also establish best practices in how the scale-up of renewable energy and associated mining can be done in a sustainable and socially responsible way.

Almost every clean energy sector set a new record level of investment in 2022, including renewable energy, storage, electrified transport, electrified heat, green hydrogen, and sustainable materials. Solar, wind, and other renewable energy grew 16% from 2021. The vast majority of global investments in renewable energy occurred in G20 countries (83%, based on 2020 data). However, total investment in fossil fuels still exceeded investment in renewables. 

The public sector accounted for around one third (31%) of total investment in renewables in 2020 (latest available data), with state-owned financial institutions, national development financial institutions, and SOEs providing more than 80% of public investment. The role of the public sector is much more important in non-grid-connected renewables, with national development financial institutions alone accounting for 27% of the total investments in off-grid technologies in 2010–2021.  

Energy modelling by the IEA, International Renewable Energy Agency, and BloombergNEF all finds that annual investment in renewable energy needs to double or triple to be consistent with a 1.5˚C stabilization in global average temperatures. Annual investments in wind and solar energy were around USD 380 billion in 2022, leaving an investment gap of more than USD 450 billion per year by 2030 (see the policy insight below). 

This gap suggests that governments can do more to support clean energy. Partly, this means creating the right enabling environment, including regulatory frameworks. Partly, it means putting in place strategic support policies, such as subsidies, directed SOE investments, and lending from PFIs. For many technologies, clean energy is already fully competitive with fossil alternatives. But support may still be required simply because of the scale and urgency of the climate crisis: in the absence of an effective and operational global carbon pricing scheme, governments must turn to second-best tools to crowd in large volumes of private investment and deploy historically unseen year-on-year clean energy capacity additions between now and 2030.