Why Do Governments Tax or Subsidize Fossil Fuels?

Governments have long faced pressure to address the climate crisis by increasing taxes on fossil fuels. It is unclear how they have responded. Fossil fuel taxes and subsidies are hard to measure and often hidden in complex policy instruments. We collect and analyze an original high-frequency measure of gasoline taxes and subsidies, covering 157 countries. Our analysis yields three findings: despite rising alarm about climate change, from 2003 to 2015 there was little change in net fuel taxes and subsidies at a global level; these taxes and subsidies appear to be driven by the same fiscal conditions that determine other types of taxes; and reforms are overwhelmingly associated with idiosyncratic country-level conditions. These patterns suggest that fossil fuel taxes are determined by a country’s revenue needs, not its political institutions or environmental commitments. They also have significant implications for debates over policies to reduce greenhouse gas emissions.