OECD Inventory of Support Measures for Fossil Fuels 2025

1. The fiscal cost of government support for fossil fuels and incentives for decarbonisation

There is considerable debate about how best to measure support for fossil fuels

There is considerable debate about the best way to measure support for fossil fuels. While budgetary transfers are relatively straightforward, support conferred via tax expenditures or exemptions is more complex, including in the context of the different incentives provided by countries in terms of their overall policies for taxing different fuel sources. In view of these debates, this section sets out how the support for fossil fuels is measured by OECD work.

Support can be understood in terms of the fiscal cost of support measures…

Since 2013, in its Inventory of Support Measures for Fossil Fuels (hereafter the Inventory), the OECD has been collecting information on policies that likely encourage the production and use of fossil fuels through direct transfers and tax expenditures. The primary objective of the Inventory is to enhance transparency by casting a wide net and identifying public policies which may result in more production and consumption of fossil fuels than would have been the case absent government intervention. It therefore sheds light on government practices that may need to be reformed in the context of the net zero transition. Data on individual measures reported in the Inventory is collected from official government sources (e.g. budget reports, see Section 5).

The information documented in the Inventory includes the fiscal costs of the covered support measures, capturing the preferential treatment accorded to fossil fuels’ consumers and producers through direct budgetary transfers and revenue forgone from applying lower tax rates on fossil fuels. In addition, the International Energy Agency (IEA) measures price support to fossil fuels based on the volume sold below market prices, which effectively promotes fossil fuel consumption. The aggregate fiscal costs obtained by combining the OECD and the IEA data therefore includes the fiscal cost of support for fossil fuels through three support mechanisms: direct transfers, tax expenditures, and price support. The fiscal costs of support measures for fossil fuels thus shows how government support to fossil fuels impacts a country's fiscal position on both the revenue and expenditure sides, highlighting fiscal resources that could be redirected to other policy objectives (Sections 2 and 5).

Government spending and revenue foregone measure the fiscal costs of support policies which likely influence the incentives to decarbonize. Policies could, for instance, decrease end-user fossil fuel prices, thereby potentially increasing both their use and associated carbon emissions and air pollution. Moreover, fiscal costs are relevant from a budgetary perspective in terms of quantifying the fiscal cost of measures that provide favourable treatment to fossil fuels and so can provide useful information for international efforts to address these underlying support measures (such as at the World Trade Organisation1).

And through broader decarbonisation incentives, as measured by the Net Effective Carbon Rate

The OECD Net Effective Carbon Rates capture key price-based incentives to reduce fuel use and emissions (hereafter, Net ECR). The indicator measures carbon pricing broadly including carbon pricing reducing support measures (OECD, 2021[1]). The Net ECR combines the fiscal costs of support measures recorded in the Inventory with the OECD Carbon Pricing and Energy Taxation (CPET) database to estimate the effective marginal carbon rates net of direct budgetary transfers that lower pre-tax prices for fossil fuels. That is, the Net ECR measures the strength of the decarbonisation incentives implemented through various carbon pricing policies, including direct budgetary transfers for fossil fuels, fuel excise taxes, carbon taxes, and ETS permit prices (Sections 3 and 5).

Together these provide a more comprehensive view of policies and incentives related to fossil fuels

These two metrics – the fiscal cost of support and Net ECR – provide two complementary perspectives on the impact of support for fossil fuels. The first provides a budgetary perspective, highlighting the fiscal cost of measures that appear to accord preferential treatment to fossil fuels. This can be useful in informing efforts to negotiate the reduction of such measures. Second, the Net ECR provides an economic perspective, measuring the strength of the incentives to decarbonise from carbon pricing policies and direct budgetary transfers for fossil fuels. This is useful for an assessment of the extent to which carbon pricing efforts support the net zero transition. This report summarises the main results stemming from the latest updates of these two datasets, thereby presenting a more comprehensive picture of the nature and magnitude of support to fossil fuels (Box 1.1).

Box 1.1. Two metrics to measure the impact of support for fossil fuels

This report is based on two complementary metrics to analyse the impact of support to fossil fuels. Each of them has some advantages and caveats that need to be noted:

Section 2 draws upon the 2025 update of the OECD Inventory of support measures for fossil fuels covering 49 countries.

• Aggregate numbers from the Inventory presented in Section 2 of this report all represent the fiscal cost of support measures for fossil fuels. They provide information about how government support to fossil fuels impacts a country's fiscal position on both the revenue and expenditure side, shedding light on government measures that may need to be reformed and which could free substantial fiscal resources that could be deployed to meet other policy objectives. However, the fiscal cost should not be interpreted as an indicator of the extent to which the considered policies are favourable or unfavourable to climate change mitigation, neither as a level of support for fossil fuels.

• The Inventory reports tax expenditures as estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s own benchmark tax system) to the benefit of fossil fuel producers or users. Hence, (i) tax expenditure estimates can increase over time either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; and (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

• Individual support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether specific measures are inefficient or ought to be reformed. Moreover, while data collected in the OECD Inventory aim to be comprehensive, the Inventory is not exhaustive. In particular, the OECD Inventory contains more information for countries that provide greater transparency in their budget documentation. This does not necessarily imply that these countries provide higher levels of support than others but may reflect their greater transparency regarding the support they provide.

Section 3 draws upon the 2024 update of the Net Effective Carbon Rates estimates (Net ECR) covering 79 countries.

• Net ECR estimates aim to measure the extent to which countries price their GHG emissions via fuel excise taxes, carbon taxes, ETS permit prices, net pre-tax support to fossil fuels. They provide information about how direct government support for fossil fuels (as negative carbon prices), alongside with explicit carbon pricing instruments and specific taxes on energy use, impacts a country’s economic position in terms of efforts to price carbon emissions. Focussing on carbon pricing instruments, non-pricing policies that could impact decarbonisation incentives are not considered – e.g. standards.

• Net ECR estimates are updated every two years. Section 3 therefore draws upon the same dataset as in the previous publication (OECD, 2024[2]).

Section 5 provides further details, including country coverage, of both approaches.

Note on country coverage: The United States requested that their data be removed from further reporting on OECD’s support measures for fossil fuels. They have thus been removed from this update, including from all numbers on previous years reported in this document. As such, any comparison with previous updates of the Inventory should take this removal into account.

Note

← 1.  See, for example, https://www.wto.org/english/tratop_e/envir_e/fossil_fuel_e.htm.