The often-quoted $7 trillion figure for annual fossil fuel subsidies can be misleading. According to the IMF report, about $1.3 trillion comes from explicit subsidies, mainly consumer subsidies like government price controls on fuel. The larger figure, however, includes "implicit subsidies," which account for the unpriced societal costs of fossil fuels, such as climate change and air pollution. These implicit costs are calculated based on the additional price needed to cover environmental and health damages, rather than actual government spending. Thus, the $7 trillion figure doesn't represent direct government support for the fossil fuel industry; instead, it reflects the overall underpricing of fossil fuels. Recent data also indicates that explicit subsidies have declined since the peak in 2022.
