As governments design stimulus measures
for economies hit by the Covid-19 crisis, they should seize the
opportunity of historically low oil prices to redirect some of
the half a trillion dollars spent annually supporting fossil
fuels into sustainable investment including low-carbon energy,
according to the OECD and the International Energy Agency
(IEA).
Government support for the production and consumption of
fossil fuels totalled USD 478 billion in 2019, according to
analysis of 77 economies by the OECD and
the IEA. While that marks an overall decline
from 2018 as lower oil prices meant governments spent less
subsidising energy costs for end-users, the data also show a 38%
rise in direct and indirect support for the production of fossil
fuels across 44 advanced and emerging economies.
“I am saddened to see some
backsliding on efforts to phase out fossil fuel support. This
rise in production subsidies seems set to continue in 2020 with
some countries targeting state aid to fossil fuel and related
industries,” said OECD
Secretary-General Angel Gurría. “Subsidising fossil fuels
is an inefficient use of public money and serves to worsen
greenhouse emissions and air pollution. While our foremost
concern today must be to support economies and societies through
the Covid-19 crisis, we should seize this opportunity to reform
subsidies and use public funds in a way that best benefits people
and the planet.”
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G20 countries pledged in 2009 to
gradually phase out inefficient fossil fuel subsidies. As well as
encouraging consumption, fossil fuel subsidies are an ineffective
way to support low-income households compared to targeted
benefits and tend to favour wealthier households that use more
fuel and energy. Money spent supporting coal, oil and gas could
instead be invested in sustainable energy infrastructure,
research and job training. In the Covid-19 climate, subsidies
drain resources that could be spent on strengthening health
system preparedness and resilience, for
example.
The combined OECD-IEA estimate of fossil
fuel support in 2019 shows an 18% decline from USD 582 billion in
2018 that is due mostly to the mechanical effect of the drop in
global oil prices on consumption subsidies. On the production
side, while several countries reduced support
for coal production and state aid to coal-fired power plants,
others increased support to oil and natural gas industries,
mostly through investments in infrastructure, budgetary support
to absorb corporate debt or preferential tax treatment for
spending on production.
The OECD’s analysis of budgetary
transfers, tax breaks and spending programmes linked to the
production and use of coal, oil, gas and other petroleum products
in 44 OECD and G20 countries showed total fossil fuel support
rose by 10% to USD 178 billion in 2019, ending a five-year
downward trend. (See the OECD
Inventory of Support Measures for Fossil
Fuels and a data
visualisation with support by fuel,
economic sector and
indicator.)
IEA analysis of government interventions
that keep end-user prices artificially low in 42 economies finds
that consumption subsidies dropped by USD 120 billion in 2019,
largely due to lower market prices. The further plunge in oil
prices this year offers a clear chance to wean economies off this
support. (See IEA
key findings on energy consumption
subsidies.)
“Fossil fuel subsidies are a roadblock to
achieving a sustainable recovery from the Covid-19 crisis,”
said Dr Fatih Birol, Executive Director of the
IEA. “Today’s low fossil fuel prices offer countries a
golden opportunity to phase out consumption subsidies. As
governments look to boost jobs and plan for a better and more
resilient future, it is essential to avoid market distortions
that favour polluting and inefficient
technologies.”
The IEA predicts that the plunge in
fossil fuel prices and use catalysed by Covid-19 is set to bring
down consumption subsidies to USD 180 billion in 2020,
which would be the lowest level since it began tracking the data
in 2007. Meanwhile, sharp declines in revenues from oil and gas
production make subsidy reforms crucial to ease pressure on
public finances in producer economies. (Read
more.)
A separate OECD report published
today, Building
Back Better: A Sustainable, Resilient Recovery after
Covid-19, examines ways governments can use stimulus
measures to make investments and societal changes that can reduce
the likelihood of future shocks and build more resilient and
environmentally sustainable societies.
Fossil fuel support
data by country
IEA outlook on
consumption subsidies
OECD on
climate change action
