Published by Global Banking & Finance Review®
Posted on July 3, 2025
2 min readLast updated: January 23, 2026
Germany can achieve a third of its climate goals by reducing fossil fuel subsidies, according to a ZEW study, potentially boosting public finances and reducing climate change costs.
BERLIN (Reuters) -Reducing fossil fuel subsidies in Germany could help it achieve around a third of its climate targets without relying on additional tools such as carbon pricing, a German research institute said on Thursday.
The Mannheim-based Center for European Economic Research (ZEW) also said in a study that about one in three countries could meet their climate goals simply by cutting subsidies for fossil fuels such as coal, oil, and gas.
Germany remains by far the largest subsidiser of fossil fuels in the European Union, providing about 41 billion euros ($48.33 billion) in government subsidies to coal, oil and gas in 2023, according to the EU's environment agency, more than 60 % of the EU total that year.
The government's plan to use Germany's Climate and Transformation Fund, which is mainly financed through CO2 emissions trading, to lower gas prices has drawn criticism from environmental groups, who argue it wastes public money to support the climate-harming fossil gas industry.
ZEW said that cutting subsidies could also boost public finances. By accounting for the hidden costs of fossil fuels, such as health and environmental damage, governments could collect extra tax revenues equal to nearly 5% of total consumption, it said, with some regions seeing even more.
Reducing subsidies would help avoid major costs from climate change, balancing out the impact of higher energy prices, the study showed.
Direct subsidies for fossil fuels make up about 1.3% of the world's total economic output, while indirect subsidies, such as the costs of pollution and health damage that aren't included in energy prices, add another 5.8%.
Altogether, they account for nearly $6 trillion globally, ZEW said, citing data from the International Monetary Fund.
($1 = 0.8483 euros)
(Reporting by Riham Alkousaa and Rene Wagner, Editing by Ludwig Burger and Jan Harvey)
Germany could meet about a third of its climate targets by reducing fossil fuel subsidies without needing additional measures like carbon pricing.
Cutting these subsidies could improve public finances by allowing governments to collect extra tax revenue from the hidden costs associated with fossil fuels.
Germany is the largest subsidizer of fossil fuels in the EU, providing approximately 41 billion euros in subsidies for coal, oil, and gas in 2023.
Direct and indirect subsidies for fossil fuels account for nearly $6 trillion globally, representing about 1.3% of the world's total economic output.
The government's plan to use the Climate and Transformation Fund to lower gas prices has been criticized by environmental groups for not adequately addressing climate change.
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