Over the past decade, there have been many attempts and efforts made to reduce fossil fuel consumption subsidies, and between 2012 and 2016 these subsidies were almost halved from a 2012 high of half a trillion dollars, but new data from the International Energy Agency shows that these subsidies crept up in 2017.
The International Energy Agency (IEA) published a new commentary on Monday, based on data from the upcoming World Energy Outlook 2018 report which is set to be released on November 13. Specifically, after being almost halved between 2012 and 2016, the estimated value of fossil fuel consumption subsidies across the globe increased by 12% in 2017 to more than $300 billion. According to the IEA, the lion’s share of the increase is due to higher prices for oil — “which, if an artificially low end-user price remains the same, increases the estimated value of the subsidy.”
It’s worth keeping in mind the reality behind what we generally label “fossil fuel consumption subsidies” and then decry their use. Such subsidies are intended to lower the price of fossil fuels or fossil fuel-based electricity to end-consumers, “often as a way of pursuing social policies including energy access,” explains the IEA. And, righteous indignation aside, there can be times when such subsidies are not only justified, but necessary, such as when governments seek to make energy more affordable for the poorest and most vulnerable groups. It would, of course, be preferable if these subsidies were directed towards investing in renewable energy technologies, but that has not always been a viable course of action for many countries in the developing world, given the lack of support from developed nations.
However, the larger reality is that many fossil fuel consumption subsidies are poorly targeted and end up “disproportionally benefiting wealthier segments of the population that use much more of the subsidised fuel.” As a result, these “untargeted subsidy policies encourage wasteful consumption, pushing up emissions and straining government budgets.” As such, phasing out fossil fuel subsidies across the globe is simply the logical next step in sound energy policy.
In 2016, according to the IEA’s data, the value of subsidies to fossil-fueled electricity were higher than those for oil, but in 2017 this seems to have shifted back to placing oil and the most heavily subsidies energy carrier. The period from 2010 to 2014 saw increasingly high oil prices, creating strong motivation for oil-importing countries to seek subsidy reform — an opportunity which was taken when prices began to fall in 2014. However, increases in international fuel prices in 2018 could end up setting back these subsidy reforms.
For more of the IEA’s commentary on fossil fuel consumption subsidies, written by Wataru Matsumura, WEO Senior Energy Analyst, and Zakia Adam, WEO Energy Analyst, click here.
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