The High Cost of Fossil-Fuel Subsidies on Sustainability and Health

Fossil-fuel subsidies – taxpayer-funded price controls and grants that make coal, oil and gas artificially cheap – pose a hidden emergency for our climate and people’s health.  They encourage wasteful, high-emission energy use, deepen air pollution and squander public money.  As UN Secretary-General António Guterres warns, “we cannot save a burning planet with a fire hose of fossil fuels”.  Yet in 2022 global consumer subsidies alone topped $1 trillion (double the 2021 level), and IMF data count about $7 trillion worldwide once hidden social costs are included.  In other words, citizens and governments are still pouring fortunes into fuels that accelerate climate change and disease.  This matters for Malaysia and all of Southeast Asia as much as it does for Washington or Brussels – reforming subsidies is critical to meeting net-zero goals, improving energy efficiency, and freeing up budgets for schools, hospitals and clean energy.

Global vs. Regional Approaches

The scale and approach to subsidies varies widely.  In wealthy economies, explicit fuel support is relatively small or targeted.  For example, U.S. federal subsidies to oil, gas and coal producers are on the order of ~$20 billion/year (mostly tax breaks) , and Europe’s direct fossil fuel subsidies are roughly €55 billion annually (about 0.3–0.5% of GDP) .  During the 2022 energy crisis the EU did enact emergency relief (about €111 bn in 2022-23), but these measures are largely being wound down.  By contrast, emerging economies still pour double-digit percentages of their budgets into subsidies.  China led the world in 2022 with ~$2.2 trillion in total fuel subsidies, followed by the U.S. ($757 bn) and India ($346 bn) .  In ASEAN, the largest spending comes from Indonesia, Malaysia and Thailand, though the political handling differs.

• Malaysia spends heavily on petrol and diesel support.  In 2022 fuel subsidies were about 3.1% of GDP, or RM 52 billion , making up ~¾ of all subsidy spending.  (By comparison Malaysia’s health and education budgets are smaller.)  The government has begun to reform: diesel and electric rates were adjusted in 2023, and Budget 2025 announced the RON95 petrol subsidy will be phased out for the top 15% of earners by mid-2025 .  However, challenges remain: most savings are eaten up by compensating measures, and progress has been slow.  Recent analysis notes that in 2023 subsidies peaked at 4.3% of GDP (about a quarter of government spending).  Equally important, subsidies in Malaysia are highly regressive – the richest 20% of households capture roughly 42% of the benefit, while the poorest 20% get only 4%.  In short, universal fuel subsidies are an expensive way to help the wealthy and undermine equitable growth .
• Singapore by contrast has no direct fuel subsidies to consumers.  Instead it maintains market-based fuel prices and has turned to carbon pricing to encourage change.  Singapore became the first Southeast Asian nation to impose a carbon tax (started at S$5/ton in 2019), now raised to S$25/ton (2024) and heading to S$45/ton by 2026 .  This revenue is earmarked for clean energy and climate investments.  In effect, Singapore’s policy internalizes carbon costs rather than masking fuel prices.
• Indonesia spent massive amounts on energy subsidies, though it has also moved toward reform.  In 2022 fuel and electricity subsidies jumped to 2.8% of GDP (driven by global price spikes) .  Today Indonesia’s 2024 budget still earmarks ~Rp386.9 trillion (~US$24 billion) for energy subsidies across diesel, gasoline, LPG (cooking gas) and electricity.  For instance, a 3kg LPG cooking-canister sells at just 30% of market price (70% subsidized), and diesel consumers get ~43% off.  Only 15% of regular-grade gasoline (Pertalite) is currently subsidized .  Some targeting has begun – e.g. requiring registration apps for subsidized fuel – but overall the system remains blunt.  Observers note that large portions of these subsidies still leak to wealthier Indonesians who drive more, echoing Malaysia’s inequity problem.
• Other developed countries:  Most OECD members have effectively phased out consumer fuel subsidies.  The EU and U.S. rely instead on tax incentives or carbon pricing to address fossil fuels.  As noted, U.S. direct subsidies are fairly limited.  Some European governments did shield consumers during the 2022-23 crisis, but even there these measures are temporary.  For example, EU data show member states passed ~270 subsidy measures in 2022; total support peaked at €111 bn and most of it is set to expire by 2025.

Impacts on Security, Affordability, Efficiency and Equity

Fossil subsidies may be intended to help citizens, but they often backfire.  Energy security can suffer: by encouraging waste, subsidies mean more imports or straining domestic supply, making countries vulnerable to price shocks. Affordability is ironically weakened in the long run: governments divert funds away from social services into subsidies, then must raise taxes or debt to cover deficits (e.g. Malaysia’s subsidies in 2023 were about 25% of spending). Inefficiency is entrenched: consumers face distorted prices, so there is little incentive to invest in energy efficiency, public transit or renewables. The IEA warns that such distortions “favour incumbent fuels” and “discourage clean energy”.

The equity effects are especially perverse. Rather than helping the poor, fuel subsidies overwhelmingly benefit those who use the most energy – typically richer urban residents. In Malaysia, for example, studies find the richest quintile takes ~42% of the petrol subsidy while the poorest 20% get only 4%.  Nigeria’s fuel subsidies ($3.9B/year) were “almost double the health budget”, yet most of that support went to motorists with larger incomes.  In practice, this means low-income families pay higher taxes to buy cheap fuel for the wealthy. The IEA notes that subsidies are often “poorly targeted and disproportionately benefit higher-income groups”. Meanwhile, household budgets in developing countries bear the brunt: fuel price spikes hit the poor hardest (as seen in Chile’s 2019 protests, cited by UNDP).

By contrast, removing or reforming subsidies can free up resources for the needy.  For example, Egypt’s reform (2014–2018) cut energy subsidies sharply – petrol/electricity subsidies dropped from ~$20B to $8.4B (3.1% of GDP) – and the savings were plowed into people.  Between 2013/14 and 2017/18 public spending on health doubled and education rose ~30% .  This helped cushion the poor even as fuel prices rose. The lesson: well-communicated, gradual reform with targeted compensation can maintain affordability for the vulnerable while ending subsidized handouts to the better-off.

Long-Term Climate, Health and Planetary Impacts

The costs of subsidies extend far beyond budgets. By keeping fossil fuels cheap, subsidies lock in higher greenhouse-gas emissions and pollution. The IMF calculates that phasing out subsidies (charging “efficient” fuel prices that include supply and environmental costs) could reduce global CO₂ emissions by ~43% relative to baseline by 2030 – aligning with 1.5–2°C climate goals. It would also raise ~3.6% of world GDP in revenues that could be invested in clean energy. Crucially, the IMF estimates 1.6 million premature deaths per year from air pollution could be averted by such reform.

Health experts make the same point: World Health Organization Director Dr. Maria Neira emphasizes that while people are suffering record heatwaves, droughts and pollution, “we continue to pour trillions of dollars into fossil fuels, which are driving these crises. It’s time to stop funding harm and start investing in health”. The Lancet Countdown likewise notes climate change is already causing tens of millions more people to face water and food insecurity. Every tonne of fuel burned adds to urban air pollution (worsening asthma, heart disease, cancer) and accelerates floods, storms and heatwaves. In this sense, subsidies pay for harm to our children’s future and the planet’s ecosystems.

Case Studies: Nigeria, Egypt, Indonesia

• Nigeria – A cautionary tale. Nigeria long treated petrol subsidies as an implicit social contract, but they became economically crippling. Analyses found subsidies (~$3.9B) consumed huge public resources (nearly double the entire health budget!) while enriching middle- and upper-income motorists. Reform efforts (e.g. 2020 attempts to remove subsidies) were repeatedly postponed or reversed due to public protests.  Surveys show that distrust of government compensation plans led many Nigerians to oppose cuts. In short, without clear communication and robust support for the poor, subsidy removal sparked social backlash.
• Egypt – A relative success story.  Starting in 2014, Egypt embarked on a phased subsidy reform.  Over four years, fuel and electricity subsidies fell from 57% of the budget deficit to 28%, and total spending on energy subsidies dropped from ~$20B (2013/14) to $8.4B (2017/18). Crucially, the government channeled much of the savings into human development: public health expenditure roughly doubled and education spending grew 30%. This clear “fiscal dividend” helped maintain public support. Energy price increases were gradual and accompanied by targeted transfers, demonstrating that reform can work if people see tangible benefits for schools, clinics and public services.
• Indonesia – Partial progress, but challenges remain. Indonesia has taken some steps (e.g. ending gasoline subsidies years ago, floating diesel prices in 2022, introducing limited targeting), yet energy support is still enormous. The 2024 budget allocated ~Rp386.9T ($23.9B) to fuel and electricity subsidies – including 70% off the price of cooking gas and 43% of diesel’s cost. While this helped contain inflation, it also highlights how complex subsidy systems can be. Officials themselves note the inefficiency: until recently, subsidized fuel was selling at a fixed price without regard to income, meaning many wealthy drivers benefited. Indonesia’s experience shows that reform requires constant political will: even when subsidies are largely removed at the pump, new ones (like cash payouts or LPG support) pop up.

Communicating and Building Support for Reform

Given the sensitivities, how can we persuade citizens and policymakers that reform is needed?  Experience suggests these keys:

• Tell a fair story. Emphasize that well-designed reform protects the poor. For example, share data showing who really gets subsidized fuel.  In Malaysia, research highlights that removing RON95 subsidies – when coupled with cash transfers – would hurt the median household very little, because savings can fully protect the bottom 60%.  Stress that instead of wasting public funds on wealthy car owners, we can redirect money to hospitals, schools or poverty relief. Use local examples: “By ending the petrol subsidy for affluent drivers, we could have built X new clinics or paid for Y additional nurses each year.”
• Lead with benefits, not just costs.  Policymakers and voters respond to concrete gains. Frame subsidy cuts as opportunities: e.g., “The RM5 billion saved by phasing out fuel subsidies for the richest Malaysians could fund free schools lunch programs or improve healthcare in rural areas.” Egypt’s experience is instructive – they showed how every ringgit taken from fuel subsidies was invested in human capital. Visual aids (charts or simple tables) comparing subsidy spending versus health/education budgets can be powerful.
• Be transparent and targeted.  Explain that reform will be gradual and accompanied by safeguards for vulnerable groups. As experts recommend, a phased approach with cash assistance is key. For instance, describe how a moderate increase in pump prices can be coupled with direct transfers to low-income families. Emphasize that the poor won’t lose out – indeed studies show the fiscal space from reform could fully offset any losses for the bottom 60% .
• Use trusted messengers. Data alone won’t sway opinion if trust is low. Engage civil society and local champions – doctors, teachers, community leaders – who can speak to everyday impacts. For example, health experts can articulate the link between cleaner air and fewer sick days for children. Religious and community organizations might advocate on behalf of the needy. Young climate activists can underscore the long-term stakes. At the same time, ensure government voices (finance, energy or social ministries) deliver a consistent message that resonates with national goals.
• Highlight international consensus. Point to global commitments and reputable institutions for credibility. Remind audiences that groups like the IEA, IMF and WHO all urge subsidy reform. Quote attention-grabbing facts: e.g., “IMF models show that eliminating fuel subsidies could prevent 1.6 million deaths annually from air pollution.” Use these as talking points in media and public forums to build momentum.

Champions of Change

No one government or person can reform subsidies alone – it requires champions at all levels. On the international stage, bodies like the International Energy Agency, IMF, ADB and World Bank (not to mention the G20 Finance Ministers’ coalition) regularly call for subsidy phase-out. In ASEAN, the ASEAN Centre for Energy and regional climate platforms can keep the issue on the agenda. Domestically, it helps when finance or economy ministers (who see the fiscal drain) join environment and health ministers (who see the social toll) to push a united front.

In Malaysia, potential champions include pragmatic policymakers and thought leaders who can bridge concerns. For instance, finance officials aware of budget pressures, energy regulators focused on grid stability, and public health experts alarmed by air quality data. NGOs and research institutes (e.g. Malaysia’s Institute of Economic Affairs, WWF-Malaysia, or local branches of the Climate Parliament) can translate technical findings into public campaigns. International figures can also lend support: quotes from Dr. Maria Neira (WHO) or statements by IEA’s Fatih Birol are newsworthy and frame reforms as part of a global transition. Ultimately, the champions will be those who can align subsidy reform with national values – whether that’s economic prudence, social justice, or the stewardship of Malaysia’s future.

The pathway is challenging, but not impossible. By facing the politics honestly, crafting fair compensation, and highlighting the tangible benefits (cleaner air, stronger services, fiscal space), Malaysia and its neighbors can untangle themselves from costly subsidies. The time is ripe: in the wake of Covid and amid rising climate threats, public appetite for smart economic policies has grown. As a sustainability expert and concerned citizen, I believe we can turn this inaction into an opportunity. Ending wasteful fuel subsidies would be a bold step toward a healthier, more secure Malaysia – one where every ringgit spent lifts people up, not pollution. The data are clear, the urgency is real, and the solutions are at hand. It’s time for leaders and communities alike to step up and reform with purpose – saving both our economy and our planet in the process.

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