Energy Subsidy Reform

Fossil fuel subsidy reform has moved from a recurring communiqué line to an active fiscal strategy in several capitals — and stalled almost entirely in others. The global total is falling from its 2022 energy-crisis peak, but the reform record is uneven: some governments are removing price controls and redirecting the savings, while others are locking subsidized prices in place to avoid political backlash. The divergence, more than the aggregate number, is the real story of 2025–26.

The Global Numbers: A Real, But Partial, Decline

The OECD and International Energy Agency's joint 2025 Inventory, which tracks more than 1,700 budgetary transfers and tax expenditures across 52 OECD, G20, EU and Eastern Partnership economies, found that the fiscal cost of global fossil fuel support fell 11% to $916.3 billion in 2024, down from $1,031.2 billion in 2023, as emergency crisis-era measures were wound down. The International Institute for Sustainable Development's Fossil Fuel Subsidy Tracker, compiled from OECD, IEA and IMF data, puts the decline in sharper relief: subsidies across all fuels fell 48% from the 2022 crisis peak of $1.76 trillion to $921 billion in 2024, with end-use electricity subsidies dropping about 20% to $216 billion. Coal support, however, has proven stickier, staying above $40 billion despite the broader retreat.

Explicit vs. Implicit: Why the Headlines Disagree

Much of the confusion around subsidy figures comes down to definitions. The IMF's most recent working paper update puts explicit fiscal subsidies — direct undercharging for supply costs — at $725 billion in 2024, down from a wartime peak of $1.4 trillion, and roughly in line with the OECD/IEA figure. But the IMF separately estimates implicit subsidies, meaning fossil fuels priced without accounting for environmental and health costs, at a far larger $6.7 trillion, or 5.8% of global GDP, with three-quarters of that tied to underpriced air pollution and climate damage. The IMF calculates that full price reform, addressing both explicit and implicit underpricing, could generate an additional $5 trillion in government revenue by 2035, equivalent to 3.3% of global GDP — a number that explains why finance ministries, not just environment ministries, are increasingly driving the reform agenda.

Africa's Reform Vanguard: Nigeria and Egypt

Nigeria has pursued the most aggressive removal to date. Following the 2023 elimination of fuel subsidies alongside foreign-exchange unification, the finance ministry reported that the combined reforms generated N15.8 trillion in fiscal savings between June 2023 and December 2025, with N5.4 trillion accruing to the federal government and N10.4 trillion shared with state and local governments. The reforms contributed to Nigeria's first sovereign credit rating upgrade in fourteen years, to 'B' from S&P Global, alongside its exit from the Financial Action Task Force grey list.

Egypt is following a more gradual, IMF-monitored path. Under an Extended Fund Facility now extended through December 2026, Cairo has raised regulated fuel prices in a series of scheduled increases tied to a Fuel Automatic Pricing Committee mechanism, part of a stated plan to close the gap between subsidized and import-parity prices. In exchange for sustained reform progress, the IMF Executive Board unlocked roughly $2.3 billion in fresh financing following its combined review in February 2026, bringing total program disbursements to about $5.2 billion, even as Cairo brought inflation down to 11.9% in January 2026.

The Holdouts: Governments Still Protecting Consumers

Not every government is moving in the same direction. Indonesia's Energy and Mineral Resources Ministry confirmed in mid-2026 that subsidized fuel prices — covering diesel, gasoline and LPG — would remain frozen through the end of the year, citing adequate stock levels rather than any change in reform strategy. Indonesia remains, by the IEA's own account, among the handful of countries with the largest vehicle-fuel subsidy bills globally, illustrating how domestic political sensitivity to pump prices can override fiscal pressure to reform, even as neighboring economies push ahead.

The G20 Pledge Gap

At the multilateral level, progress lags the rhetoric. G20 and G7 leaders first pledged to phase out “inefficient” fossil fuel subsidies in 2009; research from the London School of Economics' Grantham Research Institute found that only 32% of G20 countries actually reduced fossil fuel subsidies as a share of GDP between 2010 and 2022, and the G7's own self-imposed 2025 phase-out deadline has come and gone without full compliance. A narrower coalition has since formed to fill the gap: Canada, France and the United Kingdom have joined the Coalition on Phasing Out Fossil Fuel Incentives including Subsidies, committing to national, time-bound phase-out plans rather than the vaguer collective pledges of the G20 communiqué process.

What Reform Actually Buys

The fiscal case for reform is becoming harder to ignore. Beyond Nigeria's headline savings, the IMF's modeling shows that removing only explicit subsidies would cut global fossil-fuel CO2 emissions by roughly 5% below baseline by 2030, rising to 43% if implicit underpricing were also addressed through comprehensive carbon pricing. The persistent gap between pledge and delivery, however — visible in Indonesia's freeze even as Nigeria and Egypt push ahead — shows that reform now depends less on international commitments than on individual governments' tolerance for the near-term inflation and political cost that price liberalization brings.