Fossil fuel subsidies nearly double in major economies between 2020 and 2021

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Despite growing awareness of the climate crisis, fossil fuel subsidies have actually increased significantly in 2021, rising by nearly half.

The reason, according to the Organization for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA), is that governments of major economies have rushed to help their residents in the wake of the outbreak. energy costs.

“Fossil fuel subsidies are an obstacle to a more sustainable future, but the difficulty governments face in removing them is underscored in times of high and volatile fuel prices,” said IEA Executive Director Fatih Birol. , in a press release. “Increased investment in clean energy technologies and infrastructure is the only sustainable solution to the current global energy crisis and the best way to reduce consumer exposure to high fuel costs.”

The new analysis, from the OECD and the IEA, looked at 51 major economies, including OECD and G20 countries, as well as 33 other countries that produce and consume a significant amount of energy. The analysis covered approximately 85% of the world’s total energy supply. In these countries, fossil fuel subsidies have increased from $362.4 billion in 2020 to $697.2 billion in 2021. Subsidies are expected to increase further in 2022 as energy prices and consumption also increase.

In 2021, fuel prices rose as the world recovered from the coronavirus pandemic and subsequent lockdowns, The Guardian reported. This has led governments to try to use subsidies to reduce consumer prices. However, these subsidies do not necessarily benefit those most in need, as wealthier households tend to burn more energy.

The analysis does not yet cover 2022, when Russia invaded Ukraine and further drove up oil and gas prices.

“Russia’s war of aggression against Ukraine has caused sharp increases in energy prices and undermined energy security. Significant increases in fossil fuel subsidies, however, encourage wastage, without necessarily reaching low-income households,” OECD Secretary-General Mathias Cormann said in the statement. “We need to adopt measures that protect consumers from the extreme impacts of changing market and geopolitical forces in a way that helps us stay on the path to carbon neutrality as well as energy security and affordability. .”

The current energy crisis has revealed the volatility of reliance on fossil fuels for energy. Households in the UK are facing an 80% rise in the household energy price cap in October, a rise that could have deadly consequences. However, a Carbon Brief analysis written in July indicated that new wind power paid for at auction in the UK was nine times cheaper than gas.

Environmental groups argue that countries should not respond to the current crisis by doubling fossil fuel subsidies.

“A period of soaring fossil fuel energy prices, when oil and gas companies are posting record profits, should be the perfect time for governments to eliminate fossil fuel production subsidies – so see the support growing fossil fuel government is now infuriating,” said Gyorgy Dallos of Greenpeace International, as reported by The Guardian. “Governments need to keep their green promises. On the consumer side, they urgently need to replace untargeted support measures with targeted income support for people in fuel poverty.

The analysis was based on two data sets. The OECD dataset focused on tax breaks and budget transfers for fossil fuel production in G20 countries, according to the release. He found that between 2020 and 2021,

  1. Overall support increased from $147 billion to $190 billion
  2. Consumer support increased from $93 billion to $115 billion
  3. Producer support “reached levels not seen before in OECD monitoring efforts” and climate at $64 billion.

The IEA dataset examined consumer subsidies by comparing energy prices on the international market to domestic consumer prices in 42 countries. It concluded that consumer support had increased more than three times from 2020 levels to reach $531 billion in 2021.

“The OECD and IEA have consistently called for the phasing out of inefficient support for fossil fuels and the redirection of public funding towards the development of low-carbon alternatives alongside improving energy security and energy efficiency,” the two organizations concluded.

G20 countries have pledged to phase out “inefficient” fossil fuel subsidies and G7 nations have pledged to end most such subsidies by 2025, according to The Guardian. However, recent analysis from the IEA and the OECD suggests that they are not on track to do so.

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