April 17, 2026
Analysis by Climate Interactive with the En‑ROADS simulator shows that removing fossil fuel subsidies and reinvesting part of the savings in renewable energy can avoid about 72 gigatons of CO2e by 2050—equivalent to about ten times what the United States emits annually. This would reduce global warming by 0.2°C by 2100 while still generating nearly $4 trillion in cumulative savings by 2050.
Governments in 2024 spent nearly a trillion dollars shaping the price of energy through subsidies. Most of that money flows to fossil fuels. What would happen if it didn’t?
The En‑ROADS simulator developed by our team at Climate Interactive and MIT Sloan lets you explore how energy taxes and subsidies affect emissions, air quality, consumer energy costs, and government finances.
Despite growing support for clean energy, fossil fuels still receive significantly larger subsidies: an average of about $640 billion per year between 2010 and 2021, peaking at over $1.6 trillion in 2022 (IISD & OECD, 2024), compared to under $400 billion annually for clean energy (Taylor, 2020; IISD, 2024). The table below highlights the current global average level of tax and subsidy for each energy source as a percentage of the source’s cost, which is reflected in the default slider values in En‑ROADS.
| Energy source | Coal | Oil | Natural Gas | Renewables | Nuclear | Bioenergy |
|---|---|---|---|---|---|---|
| Taxes (% of cost) | 0% | 35% | 0% | 0% | 0% | 0% |
| Subsidies (% of cost) | 30% | 20% | 30% | 25% | 30% | 15% |
| Net tax (% of cost) | -30% | 15% | -30% | -25% | -30% | -15% |
Here are four takeaways from our modeling and what they mean for the world. Explore them for yourself by moving the sliders.
Governments have long committed to phasing out “inefficient fossil fuel subsidies,” from the G20 Pittsburgh Summit in 2009 to more recent agreements such as COP28 (UNFCCC, 2023). But what would this mean in practice?
In En‑ROADS, removing subsidies to coal, oil, and natural gas reduces projected warming in 2100 by about 0.1°C, driven by lower fossil fuel consumption.
Try it for yourself: Move the Coal, Oil, and Natural Gas subsidy sliders to 0%, and watch greenhouse gas emissions, and temperature increase go down.
At the same time, air pollution in the form of energy-related particulate matter (PM2.5) emissions declines by roughly 12%, delivering significant health benefits:
The financial implications are also substantial. Eliminating fossil fuel subsidies corresponds to roughly $800 billion per year in reduced government spending by 2036. These savings could be redirected toward clean energy or other public priorities.
In terms of climate impact, removing fossil fuel subsidies produces an effect similar to introducing a $19/ton CO₂ carbon price—as the emissions and temperature changes show below. However, from a budgetary perspective, subsidy removal is more favorable. While a carbon price generates revenue, subsidies are an ongoing cost to governments; removing the latter delivers immediate and sustained fiscal savings.
Instead of eliminating subsidies outright, governments could shift them to clean energy. This would also alleviate some of the impact of increased energy prices on consumers.
In En‑ROADS, we can simulate this by increasing renewable energy subsidies to a level roughly equivalent to the fiscal savings by 2050 from removing fossil fuel subsidies. This corresponds to approximately an 80% (of levelized cost) subsidy for renewables.
This shift reduces warming by an additional 0.1°C, resulting in a 0.2°C decrease in warming by 2100.
Try it for yourself: Remove fossil fuel subsidies, then move the Renewables subsidy slider to 80%. In the “Net Revenue from Energy Taxes & Subsidies” graph, the blue line of the Current Scenario will cross the black line of the Baseline Scenario in 2050, indicating that the savings from the fossil fuel subsidies have been reinvested in renewables. Watch temperature change go down.
Notice that air pollution also goes down, as renewables further replace coal:
This shift comes with trade-offs. In the medium term, average consumer energy prices increase slightly, by about 6% by 2050, but less than if we only eliminated fossil fuel subsidies. However, after spending about $11 trillion of the savings on renewable energy subsidies, this scenario still generates about $4 trillion in additional government savings by 2050. These savings could be used to support vulnerable households and offset higher energy costs.
A common claim is that renewable energy growth depends primarily on government support. En‑ROADS allows us to test this directly.
Removing renewable energy subsidies does slow growth compared to the Baseline Scenario, but only modestly. Global renewable energy expands roughly seven-fold by 2100 in both cases, with a compound annual growth rate of 2.6% without subsidies versus 2.7% with subsidies. In other words, the difference is minimal.
Try it for yourself: Move the Renewables subsidy to 0% slider and notice that the blue line of the Current Scenario in the “Renewables Primary Energy Demand” graph declines slightly compared to the Baseline Scenario, but renewables still continue to grow.
Decades of policy support helped drive down costs, but renewables have now crossed a threshold where cost competitiveness alone sustains their expansion, even without continued subsidies. Renewables are already the cheapest source of new electricity in many countries and are expected to become the lowest-cost option globally within this decade (IRENA, 2025). Even if we remove subsidies for renewables, wind and solar are still cheaper than any other energy source, as shown in the green line of the “Marginal Cost of Electricity Production” graph:
Applying a hypothetical tax of up to 200% of fuel prices produces markedly different outcomes across fuels.
A coal tax produces the largest climate and health benefits. Because coal is the most carbon-intensive fuel (IPCC, 2023; IEA, 2016), reducing its use leads to the greatest declines in CO₂ emissions.
Coal produces the most air pollution among the fossil fuels, so taxing it leads to the greatest decline in air pollution, which is a significant benefit to the public health of communities living close to coal burning facilities:
An oil tax significantly increases government revenue while it also reduces fossil fuel producer revenue (shown in the graph below). Oil taxes generate large and sustained revenues for governments partly because oil demand tends to hold steady even as prices rise. Governments already tax oil widely to raise revenue for roads, for example.
An oil tax also leads to the largest medium-term increase in consumer energy prices (about 17% higher than in the Baseline Scenario within 10 years).
Taxes and subsidies are one piece of the climate puzzle. In En‑ROADS, you can combine these price adjustments with other policies, such as energy efficiency, electrification, and protecting forests, and see how different combinations affect emissions, health, and warming.
For further instructions on using the energy tax and subsidy sliders in En‑ROADS, read the explainer.
Details on how we modeled energy taxes and subsidies are included in the En‑ROADS Technical Reference.
This article uses En‑ROADS app version 26.4 (April 2026). En‑ROADS is updated monthly with new modeling and features, so later versions may produce different numerical results.
We’re grateful to everyone who contributed to this update. This work builds on recommendations from the MIT Climate Policy Center, Yale Program on Climate Change Communication, International Institute for Sustainable Development (IISD), and others. It also benefited from review and testing by colleagues, En‑ROADS Climate Ambassadors, and energy experts from institutions including Arizona State University, Brazilian Development Bank, IISD, Alliance for Market Research, MIT, Reutlingen University, and Earth Track.