What role did government taxes and subsidies play in retail gasoline price changes 2021–2025?
Executive summary
Governments changed both taxes and subsidies from 2021–2025 in ways that materially affected retail gasoline prices: many governments reduced or suspended fuel taxes or introduced direct price subsidies to blunt the 2022 price shock, while others raised or maintained excises and new clean‑fuel credits that raised costs at the pump (examples: French temporary fuel tax measures and U.S. low‑emission fuel credits) [1] [2]. Global data collections and IMF/World Bank work show that fuel taxation and subsidies are a major determinant of retail price levels and “pass‑through” of international oil prices to consumers [3] [4].
1. Policy choices as a price buffer — governments used taxes and subsidies to blunt 2022 shocks
When international oil prices surged after Russia’s invasion of Ukraine, several governments deliberately reduced excises or introduced temporary subsidies so the retail price rise consumers actually faced was smaller than the wholesale shock; one detailed country‑level analysis treats the counterfactual in France as a +33% wholesale price jump in 2022 that was tempered by policy actions [1]. The World Bank’s 2025 landscape notes repeated use of tax‑reductions and subsidies in 2022–2025, and that many of those measures were extended beyond their initial term [4].
2. Taxes and “foregone” revenue count as subsidies — the accounting matters
International datasources like the IMF treat tax concessions and under‑taxation as implicit subsidies because they reduce retail prices relative to supply costs; their methodology explicitly bundles excises, VAT, carbon pricing and other levies into the computation of “fuel taxes (or subsidies)” so under‑taxation shows up as a subsidy in the numbers [3]. The World Bank likewise documents subsidies “through foregone taxes, royalties, and dividends,” highlighting that government decisions not to tax fully are economically equivalent to cash transfers to fuel consumers or producers [4].
3. Variation across countries — some hiked, many cut, and controls created distortions
Global coverage shows wide divergence: some jurisdictions increased fuel taxes or implemented new environmental levies that raise pump prices, while many countries with regulated prices relied on subsidies or price controls to keep consumer prices low — a pattern associated with shortages, black markets and smuggling in some cases [4]. The IMF database finds road fuel prices exceed supply costs in most countries precisely because many governments levy excises; but a minority of countries (e.g., Iran, Saudi Arabia) keep prices below supply cost, producing large implicit subsidies [3].
4. United States: layered tax picture and new clean‑fuel credits
In the U.S., federal and state excise taxes and fees form a substantial, geographically variable slice of pump price; state maps and rate tables for 2025 show large differences (e.g., California among the highest state levies), and the Tax Foundation and other compilations document additional state fees that raise retail prices [5] [6]. At the same time, new federal clean‑fuel tax credits starting 2025 (e.g., Clean Fuel Production Credit: $0.20/gal for non‑aviation fuels, $0.35/gal for SAF) are subsidies intended to lower costs for low‑emission fuels and influence market mixes [2].
5. Who bears the cost and who benefits — distributional and political effects
Academic work shows that price subsidies or tax reductions are highly salient to voters and cushion welfare losses when fuel prices spike; however these measures are costly to public finances and can entrench higher consumption patterns [1] [7]. Global reviews emphasize that many subsidies take the form of tax exemptions or accounting provisions that benefit producers as well as consumers, and that removing such measures can be politically fraught [8] [9].
6. Limits of the available reporting and competing interpretations
Available sources document policy steps and measurement frameworks but do not provide a single, standardized decomposition of how much of retail price changes between 2021–2025 were caused exclusively by taxes versus underlying international oil prices in each country; the IMF and World Bank estimate pass‑throughs of international price changes and model implicit taxes/subsidies, but country‑level attribution varies [3] [4]. Some advocacy pieces argue removing producer subsidies won’t change world prices materially (claim referenced by advocacy groups and CRS summaries), while others point to large implicit subsidies globally — both perspectives appear in the material provided [10] [8].
7. Bottom line for readers and policymakers
Between 2021 and 2025, government tax decisions and subsidy programs were deliberate policy levers that changed the portion of international price movements felt at the pump: in some places cuts or subsidies damped consumer pain; in others taxes, environmental levies, or fewer subsidies left consumers more exposed — and global datasets (IMF, World Bank) treat both explicit payments and foregone taxes as economically meaningful subsidies or taxes when accounting for price effects [3] [4]. Available sources do not mention a single global percentage split of price movement attributable to taxes versus wholesale price changes; a precise decomposition requires country‑by‑country accounting using the IMF/World Bank datasets cited above [3] [4].