Os subsidies for the consumption of fossil fuels all around the world soared in 2022, rising above US $ 1 trillion for the first time, as turbulence in energy markets raised prices on international markets well above what was actually paid by many consumers.
This is what the IEA (International Energy Agency). According to the entity, the record benefits last year – amid the global energy crisis triggered by the war between Russia and Ukraine – were double 2021 levels, which was almost five times the number seen in 2020.
This rising spending contrasted with the Glasgow Climate Pact, which in November 2021 called on countries to “phase out inefficient fossil fuel subsidies while providing targeted support to the poorest and most vulnerable.”
In the IEA's view, many of these government measures were not well targeted and, although they may have partially protected customers from exorbitant costs, they artificially maintained the competitiveness of fossil fuels relative to low-emission alternatives.
For many years, the Agency has been monitoring the benefits of fossil fuels, evaluating situations in which consumers pay less than the market price for the fuel itself.
According to preliminary estimates for 2022, oil subsidies have increased by around 85%, while those related to natural gas and electricity consumption have more than doubled.
As noted in the World Energy Outlook, high fossil fuel prices were the main reason for the upward pressure on global electricity costs, accounting for 90% of the increase in average power generation values across the world.
Governments have adopted several measures to protect consumers from the worst effects of the energy crisis. “The most common, as always, was simply to fix tariffs for the end user or limit increases in fuel or electricity prices”, they pointed out.
For example, the Peruvian government decided in April 2022 to temporarily include several transportation fuels in the State Fuel Price Stabilization Fund to contain rising costs.
Many advanced European economies have limited consumer exposure to the full impact of spiraling natural gas prices. Thailand has introduced a price cap of THB 30 ($0,85) per liter of diesel.
“Some successful subsidy reform programs have been halted: Egypt, for example, extended electricity subsidies, which it had previously planned to phase out by the end of the 2021-2022 fiscal year,” the IEA experts reported.
“Almost all of the consumption subsidies we found with our price difference methodology were in emerging and developing economies. More than half were in fossil fuel exporting countries”, they highlighted.
However, according to the entity, measures to limit the effect of price volatility were much more widespread, mainly in Europe. “Most interventions in advanced economies did not meet our definition of benefits to fossil fuel consumption because average end-user prices remained above market-based values. But, they were a significant drain on fiscal resources.”
IEA tracking suggests that more than $500 billion in extra spending has been committed to reducing energy bills in 2022, particularly in advanced economies – this is in addition to fossil fuel consumption subsidies identified elsewhere.
These measures included exemptions from various taxes and fees, compensation mechanisms for different groups of affected consumers, efforts to ease payment deadlines or placing a moratorium on disconnections due to non-payment.
“Many utilities and other energy companies, as well as energy-intensive industries, have received additional support to manage higher fuel-related costs, especially for gas and electricity,” the study emphasized.
Elimination of subsidies for the consumption of fossil fuels
According to the International Energy Agency, phasing out fossil fuel subsidies is a key ingredient for successful clean energy transitions. However, the current global energy crisis has also highlighted the political challenges of doing so.
Russia's invasion of Ukraine caused the crisis, but the 2022 jump in subsidies holds some broader lessons about the need for orderly, people-centered transitions.
According to the IEA, periods of high and volatile fossil fuel prices highlight the unsustainability of the current energy system and highlight the benefits of energy transitions, but these episodes come with significant economic and social costs.
“High fossil fuel prices are no substitute for consistent climate policies. During an energy crisis, government commitments to phase out subsidies are overshadowed by the priority of protecting consumers,” they said.
“The resulting government actions reduce hardship, but also weaken incentives for consumers to save or switch to alternative energy sources and spend public funds that could be spent in other areas, including on clean energy transitions,” the report noted. .
In the researchers' view, high fossil fuel prices hit the poor hardest, but subsidies are rarely well targeted and, as a result, tend to benefit those who are better off.
“Effective targeting to protect vulnerable groups requires investments in better data collection and the creation of effective income transfer mechanisms,” they emphasized.
“But well-designed policies should prevent fuel supply from becoming too out of step with demand in the first place. Resources are best used to provide lasting protection against fuel price volatility,” they explained.
This means anchoring market-based prices in a broader set of policies and measures that enable households and industries to make cleaner energy choices. “High-efficiency, low-emission equipment and services need to be readily available, and the poorest consumers need support to manage their upfront costs.”
“It is far better for governments to spend time and money on structural changes that decrease demand for fossil fuels, rather than on emergency aid when fuel prices rise,” the IEA concluded.
An answer
These “smokes” in the photo are actually water vapors, from cooling towers, from what I observed, this is not pollution, they are water vapors, they should clarify this in the footer of the photo.