Fri. Apr 19th, 2024


New analysis by the Organisation for Economic Co-operation and Development and the International Energy Agency, has revealed that major economies sharply increased support for the production and consumption of coal, oil and natural gas, with many countries struggling to balance longstanding pledges to phase out inefficient fossil fuel subsidies with efforts to protect households from surging energy prices, according New OECD and IEA data showed that overall government support for fossil fuels in 51 countries worldwide almost doubled to $697.2 billion in 2021, from $362.4 billion in 2020, as energy prices rose with the rebound of the global economy. In addition, consumption subsidies are anticipated to rise even further in 2022 due to higher fuel prices and energy use.

OECD Secretary-General Mathias Cormann said “Russia’s war of aggression against Ukraine has caused sharp increases in energy prices and undermined energy security. Significant increases in fossil fuel subsidies encourage wasteful consumption though, while not necessarily reaching low-income households. We need to adopt measures which protect consumers from the extreme impacts of shifting market and geopolitical forces in a way that helps keep us on track to carbon neutrality as well as energy security and affordability.”

“Fossil fuel subsidies are a roadblock to a more sustainable future, but the difficulty that governments face in removing them is underscored at times of high and volatile fuel prices. A surge in investment in clean energy technologies and infrastructure is the only lasting solution to today’s global energy crisis and the best way to reduce the exposure of consumers to high fuel costs,” IEA Executive Director Fatih Birol said.

The current OECD-IEA combined estimates cover 51 major economies, spanning the OECD, G20 and 33 other major energy producing and consuming economies representing around 85% of the world’s total energy supply.

According to the report, OECD analysis of budgetary transfers and tax breaks linked to the production and use of coal, oil, gas and other petroleum products in G20 economies revealed that total fossil fuel support rose to $190 billion in 2021 from $147 billion in 2020. Support for producers reached levels not previously seen in OECD tracking efforts, at $64 billion in 2021 – up by almost 50% year-on-year, and 17% above 2019 levels. Those subsidies have partly offset producer losses from domestic price controls as global energy prices surged in late 2021. The estimate of consumer support reached $115 billion, up from $93 billion in 2020.

The IEA produces estimates of fossil fuel subsidies by comparing prices on international markets and prices paid by domestic consumers that are kept artificially low using measures like direct price regulation, pricing formulas, border controls or taxes, and domestic purchase or supply mandates. Covering 42 economies, the IEA finds that consumer support increased to $531 billion in 2021, more than triple their 2020 level, driven by the surge in energy prices.

The OECD and IEA have consistently called for the phasing out of inefficient fossil fuel support and re-direction of public funding toward the development of low-carbon alternatives alongside improvements in energy security and energy efficiency. Subsidies intended to support low-income households often tend to favour wealthier households that use more fuel and energy and should therefore be replaced with more targeted forms of support.

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By Joy

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