Seeking to offset rising energy costs, governments spent more than $1 trillion on subsidies for the consumption of fossil fuels last year, an all-time high.
Russia’s invasion of Ukraine roiled energy markets in 2022, as Russia cut natural gas exports to Europe, and Western nations moved to wean off Russian oil. The drop in supply sent prices soaring globally. To shield consumers from rising costs, governments further subsidized the consumption of oil, natural gas, coal, and electricity, particularly in developing countries.
Oil subsidies rose 85 percent between 2021 and 2022, while subsidies for natural gas and electricity more than doubled year on year, according to a new report from the International Energy Agency. The analysis only accounts for direct fossil subsidies. It does not account for the high cost of pollution or climate disasters, which are borne by the public but not included in the price of fossil fuels.
Last year, consumer fossil fuel subsidies matched global investment in low-carbon technologies and helped keep coal, gas, and oil artificially competitive with solar, wind, and electric vehicles. Analysts say that government spending is at odds with the Glasgow Climate Pact, which calls on countries to phase out “inefficient” fossil fuel subsidies.
“During an energy crisis, government commitments to phasing out subsidies are overshadowed by the priority to protect consumers,” IEA analysts wrote. “The resulting government actions reduce hardship but also weaken incentives for consumers to save or to switch to alternative sources of energy, and use up public funds that could be spent in other areas, including on clean energy transitions.”
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