By Alister Doyle, Environment Correspondent
Subsidies on oil, gas or coal are meant to help the poor by lowering the price of energy but the report, issued on the sidelines of a 160-nation U.N. climate meeting in Ghana, said they often backfired by mainly benefiting wealthier people.
The study said fuel subsidies totaled about $300 billion a year, or 0.7 percent of world gross domestic product (GDP).
"Cancelling these subsidies might reduce greenhouse gas emissions by as much as 6 percent a year while contributing 0.1 percent to global GDP," it said.
People forced to pay higher prices for energy would likely cut back on use of fossil fuels, the main source of greenhouse gases from human activities.
"Governments should urgently review their energy subsidies and begin phasing out the harmful ones," said Achim Steiner, head of the Nairobi-based U.N. Environment Programme (UNEP).
"In the final analysis many fossil fuel subsidies are introduced for political reasons but are simply propping up and perpetuating inefficiencies in the global economy," he said in a statement.
Subsidies were biggest in Russia, with about $40 billion a year spent mainly on making natural gas cheaper, ahead of Iran with $37 billion. China, Saudi Arabia, India, Indonesia, Ukraine and Egypt also had big subsidies on fuels.
Subsidies are "diverting national funds from more creative forms of pro-poor policies and initiatives that are likely to have a far greater impact on the lives and livelihoods of the worse-off sectors of society," the report said.
It said liquefied petroleum gas (LPG) subsidies in India, aimed at getting fuel to poor households, totaled $1.7 billion in the first half of 2008. But the report said: "LPG subsidies are mainly benefiting higher-income households".
Some smarter subsidies such as tax breaks, financial incentives or other market mechanisms could generate benefits for the economy and environment if properly targeted, it said and pointed to subsidies to promote wind energy in Germany and Spain aimed at helping to shift from fossil fuels.
Well-devised subsidies in Chile had spread rural electrification to 90 percent of the population from 50 percent in 12 years, it said.
Governments in Accra are working on the building blocks of a new climate treaty meant to be agreed at the end of 2009 to help slow warming temperatures that may bring more heatwaves, more powerful storms and disruptions to water and food supplies.
(Additional reporting by Daniel Wallis in Nairobi, editing by Mary Gabriel)