Why do countries support clean energy on one hand and subsidise fossils fuels on the other, asks Marco Magrini
Once upon a time, all the rulers and dignitaries from around the world and their wise and trusted advisors gathered to talk about vanquishing a common foe. After some angry words and much controversy, they eventually gave their blessing to an agreement – dubbed the Glasgow Climate Pact – which the populace greeted with (some) jubilation. Among the agreement’s many pledges was a solemn vow to globally ‘phase-out inefficient fossil fuel subsidies’. And, yes, it was a fairy tale.
In its latest report, the International Energy Agency (IEA) revealed that in 2022, the diverse forms of national support for oil, gas and coal consumption have, for the first time, exceeded one trillion US dollars. In other words, while many countries are promoting the transition to clean energy with one hand, they’re helping fossil fuel producers with the other.
Subsidies generally take two forms: production subsidies (tax breaks or incentives to fossil-energy producers; common mostly in Western countries) and consumption subsidies (reduced energy prices for the end user; more common in developing countries and in oil-rich states). According to the IEA, global oil subsidies soared by nearly 85 per cent last year, while gas and electricity consumption support more than doubled.
Of course, this has much to do with the energy crisis triggered by Russia’s invasion of Ukraine. Most European countries decided to partially shield their consumers from spiralling gas prices. And so did other nations, from Peru to Thailand. By doing so, ‘they artificially maintained fossil fuels’ competitiveness versus low-emissions alternatives,’ two IEA analysts argue in a commentary.
Now, the good news is that Europe as a whole managed to survive winter mostly deprived of Russian gas, which was replaced by liquid natural gas shipments, an unfortunate uptick in coal usage, and energy-saving measures. A major contribution came from carbon-free energy: solar and battery installations grew by a resounding 35 per cent and 79 per cent, respectively. Finally, unusually warm weather – courtesy of climate change – did the rest.
In this scenario, something weird stands out: the enormous profits raked in by Big Oil. Last year, the five majors added US$196.3 billion to their bottom line. ‘It’s outrageous,’ said US President Joe Biden during his State of the Union address, while suggesting a tax rise. ‘I have a special message for fossil fuel producers scrambling to expand production and raking in monster profits,’ said UN Secretary-General António Guterres. ‘If you cannot set a credible course for net-zero, you should not be in business. Your core product is our core problem.’
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But the weirdest thing is that BP, after reporting a staggering US$28 billion in earnings, partially backtracked from previous emission-reduction goals. Contrary to previous announcements, Shell said it wouldn’t increase spending on green energy this year. And Exxon just pulled back funding from its long-standing effort to produce biofuel from algae.
The idea behind Article 36 of the Glasgow Climate Pact is that phasing out ‘inefficient fossil fuel subsidies’ is a necessary step towards a successful clean-energy transition. For decades, the deployment of renewable sources was somewhat impeded by the holy grail of ‘grid parity’: the day when electricity from solar or wind becomes cheaper than electricity from gas or coal. That day, in many latitudes of the world, has already arrived. Spending money on keeping the ‘fossils’ alive, really isn’t a good idea.
Of course, those recent fossil fuel subsidies were a case of force majeure – preventing mass street protests in a time of war. They will decrease significantly this year as energy prices appear to have eased. But Europe – not to mention the USA – still has tax breaks and other incentives that benefit the fossil fuel industry that need to be abandoned. It will be harder to get oil-rich countries to stop selling oil at a steep discount to their citizens, however, and the word ‘inefficient’ is vague enough to leave plenty of room for loopholes.
The world’s nations should stick to the promise they signed up to with the Glasgow pact – step back from fossil fuel subsidies and support a rapid energy transition with both hands.
