This paper examines subsidies that encourage production or consumption of fossil fuels in Australia. In 2001-02, identified subsidies to fossil fuels amounted to almost $9 billion. Of these, around $8 billion worth increased greenhouse gas emissions and around $5 billion worth decreased economic efficiency. Most of the subsidies support use of petroleum products in the transport sector. Subsidy removal could provide a double dividend by improving economic efficiency and reducing greenhouse gas emissions.