Time to act on EU fossil fuel subsidies

Time to act on EU fossil fuel subsidies

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Ten years after committing to phase-out fossil fuel subsidies, EU governments still lack concrete plans to put an end to taxpayers’ money being spent in a way that accelerates the climate crisis. While EU Member States are supposed to report on their fossil fuel subsidies and plans to end them as part of their National Energy and Climate Plans (NECPs), new analysis shows that none of the draft plans present a comprehensive overview of subsidies nor a clear plan to end them.

EU fossil fuel subsidies continue despite commitments to end them

EU countries have made several commitments to end fossil fuel subsidies. Back in 2013 they even set a 2020 deadline for ending all environmentally harmful subsidies, including those to fossil fuels. But previous research by the Overseas Development Institute (ODI) and Climate Action Network (CAN) Europe has shown that government support to coal, oil and gas, and fossil fuel-based electricity continue at alarming levels.

Subsidies to fossil fuels distort the market, making clean energy and energy efficiency technologies relatively more expensive, and prop up a dirty and outdated industry. They risk further lock-in to fossil fuel infrastructure, which can result in these becoming uneconomical and ‘stranded’ in the future. They also take resources away from productive investments such as education and healthcare.

Draft energy and climate plans fail to provide adequate subsidy phase-out plans

New analysis of the 28 EU countries’ draft NECPs shows that none of them provides a complete overview of the individual country’s fossil fuel subsidies, nor a plan to phase them out.

Despite evidence showing otherwise from ODI and the European Commission, six EU governments (Bulgaria, Denmark, France, Hungary, the Netherlands, and the United Kingdom) claim or imply that no fossil fuel subsidies exist in their countries. The Netherlands, for example, states that “it has no grants or subsidies for fossil fuels”. Data from pre-existing research, including from the European Commission itself, however, shows that all EU Member States continue to subsidise the production and/or use of fossil fuels.

Five countries (Germany, Greece, Poland, Slovenia and the United Kingdom) even discuss the introduction of new fossil fuel subsidies in their draft NECPs. Poland, for example, discusses the introduction of subsidies for underground fossil gas storage and Germany discusses the introduction of tax incentives for the use of fossil gas as a fuel until 2026. This is alarming and retrograde if the EU is serious about tackling the climate crisis.

Half of the Member States discuss broader plans for wider green fiscal policy reforms, such as carbon pricing. This reflects a common tendency for governments to highlight their positive actions, while insufficiently addressing ongoing support to fossil fuels. 

Some Member States provide stronger language on acting on fossil fuel subsidies in their draft plans. Italy’s is the most promising, stating that “all fossil fuel subsidies are inefficient from both and economic and environmental point of view”. It explains that it plans to gradually reduce environmentally harmful subsidies and to use freed up resources to support the energy transition and those affected by it. Italy lists 30 subsidy measures that have been identified for reform as a matter of priority and another 13 subsidies that either require further technical analysis or reform. Although Italy’s rhetoric, transparency and reform agenda on fossil fuel subsidies in its draft NECP goes much further than other Member States, it does not yet provide a complete phase-out plan. 

 

A final opportunity to set out genuinely robust plans 

While the draft NECPs in their current form fail to do their job on fossil fuel subsidies, Member States still have an opportunity to improve these over the next few months, before submitting their final NECPs at the end of the year. 

The recommendations published by the European Commission in June 2019 provide some guidance on how to do this. Our report provides further guidance, including the use of a commonly adopted fossil fuel subsidy definition, and existing databases and methodologies to help comprehensively report on subsidies. Putting an end to fossil fuel subsidies is paramount for meeting the EU’s climate goals and tackling the global climate emergency. 

Subsidies for the consumption of fossil fuel are often not well-targeted and disproportionately benefit the wealthy, who consume higher levels of fossil fuels. Ongoing subsidies for fossil fuel production distort the market, making clean energy and energy efficiency technologies relatively more expensive. They also lead to ‘lock-in’ of high-carbon investments, increase the risk of ‘stranded assets’, and are damaging to public health due to fossil fuels being the leading source of air pollution. The European Commission has therefore repeatedly called upon member states to end fossil fuel subsidies. 

It is possible to transition away cost effectively from fossil fuels towards renewable energy, make energy savings, and realise environmental, social and economic benefits. Recent research shows that shifting just 10-30% of global fossil fuel subsidies to renewables, could unleash a clean energy revolution. This would be accompanied by reduction in healthcare costs due to improvements in air quality.

Governments across the EU should use the NECP process to turn their longstanding subsidy phase-out promises into action and reap the benefits of this much-needed transition.

This report is available on the ODI website.

Authors: Laurie van der Burg and Ipek Gencsu.

Image courtesy of Alistair Hamilton via Flickr.

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