During the first months of the Covid-19 pandemic, the global economy slowed down and energy prices nosedived. Amidst this economic dip, governments were presented with an opportunity to stave off economic and environmental disasters; they failed again. 

This failure stemmed from a lack of action on fossil fuel subsidies - government action that raises the amount received by energy producers or lowers the amount paid by energy consumers. This creates a difference between the amount fossil fuel companies make and the price consumers pay at the pump or on their monthly hydro bill. 

Subsidies themselves are an important part of economics that help ensure that the positive societal benefits of transactions, known as positive externalities, are reflected in prices. However, the problem with fossil fuel subsidies is that, in light of a greater understanding of climate change, they no longer provide the positive benefits to justify their cost. 

This sentiment was recently reflected in an International Monetary Fund study which found that if all fossil fuel subsidies were removed by 2025, CO2 emissions would fall by 36%.¹ Yet, despite the fact that this could mean the difference between a manageable or catastrophic increase in global temperature, government action remains few and far between. 

This hesitancy is not unwarranted, as repeated attempts to remove fossil fuel subsidies have resulted in public backlash. It only takes a quick consideration of major protest movements in recent years, across the globe and political systems from France’s Yellow Vests to the first major upheaval of 2022 in Kazakhstan, to realize that sudden rises in fuel and energy prices are common denominators in civil unrest. Moreover, the most common outcome of this instability is governments being forced to reinstate fossil fuel subsidies. While some may see this as a neutral outcome, it stigmatizes the issue, with any future mention of removing subsidies bound to encounter opposition. Meanwhile, simply waiting is not an option as this trend is not going away, with the Eurasia Group, a leading research firm, listing the disconnect between energy policies and realities on the ground amongst its ten greatest threats to global economies this year.²

Thus, in attempting to minimize these costs, when one considers successful reductions of fossil fuel subsidies they have often come when prices were in steep decline. During the 2014 oil plunge, Malaysia, Morocco, and Saudi Arabia cut subsidies with minimal pushback, and during the first months of Covid-19, Nigeria and Tunisia, which took comparable action, realized a similar outcome.³ The success of these countries demonstrates that other nations missed an opportunity in failing to take similar action. The same mistake must not happen again. 

Those countries that have recognized the benefits of subsidies but are wary of the costs must wait for the next fuel and energy price fall and act decisively. Although no one knows when that opportunity will emerge amidst soaring energy prices, in the words of General Eisenhower, “plans are worthless; but planning is everything.”⁴ It is time we follow his advice.

Nathan Feltmate is a first-year student in Trinity College. He is currently in the international relations stream of the Margaret Macmillan Trinity One Program. His interests include international relations, economics, history, and political science, with a particular focus on the interconnection across these different fields.

1. Ian Parry, Simon Black, and Nate Vernon, “Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies,” IMF Working Paper, IMF, last modified on September 23, 2021, 5.
2. Eurasia Group. “Eurasia Group Publishes 'Top Risks' Predictions for 2022.” Eurasia Group, January 3, 2022. https://www.eurasiagroup.net/media/eurasia-group-publishes-top-risks-predictions-for-2022.
3. Tim Gould and Zakia Adam, “Low Fuel Prices Provide a Historic Opportunity to Phase out Fossil Fuel Consumption Subsidies – Analysis,” IEA, June 2, 2020, https://www.iea.org/articles/low-fuel-prices-provide-a-historic-opportunity-to-phase-out-fossil-fuel-consumption-subsidies.
4. Angel Garcia Contreras, Martine Ceberio, and Vladik Kreinovich, "Plans Are Worthless but Planning Is Everything: A Theoretical Explanation of Eisenhower's Observation," IEA, last modified on June 2, 2020.