Fossil fuel subsidies & communication: lessons from Latin America
09/22/2025
3 min
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Brazil and other countries in Latin America and the Caribbean invest billions annually in subsidies for fossil fuels — in the form of tax exemptions, price controls, and indirect incentives.
Although they are often presented as measures to protect consumers purchasing power, especially among lower-income households, these subsidies may not be the most efficient strategy.
For example, by artificially reducing prices, they can induce the consumption of natural resources and end up increasing the emission of greenhouse gases and other air pollutants. Research has also shown that while a chief motivation for subsidies is to ensure that lower-income households have access to affordable energy, wealthier households tend to capture most of the resources, as they consume more energy in their daily lives. Reducing such subsidies may also allow governments to address social inequities by freeing resources to be used in welfare programs or investments in areas such as healthcare and education.
The impact of the oil crisis in the 1970s
Energy subsidies in Brazil have their origins in policies adopted throughout the 20th century, particularly measures implemented in the wake of the oil crises of the 1970s. According to Adilson de Oliveira and Tara Laan’s article on the lessons learned from Brazil’s Experience with Fossil-Fuel Subsidies, until the 1970s, these subsidies were gradually expanded, mainly favoring industry, consumers in specific regions, and users of liquefied petroleum gas (LPG).
The oil crises of the 1970s intensified this support, which reached unsustainable levels in the 1980s. Although the main focus of these policies was to stimulate industrialization, they also served social and environmental objectives. One of their main objectives was to ensure that energy remained accessible to all, especially low-income families, guaranteeing that these low-income families had access to energy at affordable prices.
Today, these policies continue to be maintained mainly due to the difficulty of restructuring state support systems in contexts of inequality and political fear of the unpopularity that any withdrawal of subsidies would create.
Many attempts to implement energy reforms have often triggered strong social reactions and widespread popular dissatisfaction. In addition, in many countries, fossil fuels are the main energy sources available.
In Brazil, fossil fuel subsidies amounted to more than R$ 80 billion in 2023, according to monitoring by Inesc. A significant portion of these amounts was allocated to tax breaks on fuels and natural gas, which may have unintentionally disproportionately benefited higher-income consumers—those who consume the most of these products.
Public resources must ensure a just ecological transition
In an article published in the journal Global Environmental Change, my coauthors Yan Vieites, Bernardo Andretti, Mariana Weiss, Michelle Hallack, and I argue that phasing out fossil fuel subsidies would be an effective way to advance both the environmental agenda and social justice. Such a move would allow public resources to be redirected to more efficient social policies.
Although fossil fuel subsidies are still widely used in Latin America and the Caribbean, they generate some inefficiencies and unintended impacts. Although they are often defended as a way to ensure affordable energy, wealthier families end up capturing most of the subsidy resources, as they consume more energy. Thus, subsidies could be better used to ensure a fair ecological transition with actions more focused on the low-income population.
A survey conducted in 11 Latin American countries, including Brazil, with more than 5,000 participants, showed that most people are largely unaware of the existence of fossil fuel subsidies—mainly for fuels and, to a lesser extent, for electricity. In addition, citizens generally would like to see subsidies increased in their countries.
However, the study also showed that public acceptance of removing subsidies depends heavily on the type of argument presented. When citizens are exposed to the potential negative consequences of subsidies—such as those relating to pollution, or distributive injustice —they are more favorable to change. By contrast, when the focus of communication is only on promised future benefits, such as improvements in health or education, public acceptance is lower.
Furthermore, we found that the presentation of complete and balanced information, including both costs and potential gains, is even more effective.
Social psychology applied to economic behavior can help us understand why this policy remains so difficult to reform. One of the most powerful effects relates to the notion of loss aversion: that is people react more strongly to the prospect of losing something they already have (such as a fuel discount) than to the promise of an uncertain future benefit.
Another factor relates to the ambiguity of information: when policy change is presented in a generic way or without clarity relating to its impact, public resistance increases, especially among the most vulnerable groups.
This article by Jorge Jacob, Professor at IÉSEG School of Management, is the English version of an article originally published by the Conversation.
