Fossil Fuel Consumption Subsidies Soared to Record Heights in 2022

Despite constant warnings from the scientific community about the dangers of the climate crisis and extreme weather events from devastating flooding in Pakistan to record-breaking heat waves worldwide, world leaders still subsidized fossil fuel consumption with a record more than $1 trillion in 2022.

That’s the conclusion from an International Energy Agency (IEA) report that found that fossil fuel subsidies in response to a global energy crisis more than doubled their 2021 number. The record spending came despite the fact that world leaders had committed to phasing out “inefficient fossil fuel subsidies” at the close of 2021 as part of the Glasgow Climate Pact. 

“Our analysis shows that many of these government measures were not well targeted, and while they may have partially protected customers from skyrocketing costs, they artificially maintained fossil fuels’ competitiveness versus low-emissions alternatives,” IEA Senior Energy Analyst Toru Muta and IEA Energy Analyst Musa Erdogan wrote in a commentary on the new report.

In February of 2022, Russia invaded Ukraine, causing oil and gas prices to spike worldwide. To protect consumers from the shock, governments responded in various ways, according to the report. For example, Peru decided to add several transportation fuels to its State Fuel Price Stabilization Fund, Thailand put a price cap on diesel and Guyana axed an excise tax on both diesel and gasoline. 

By fuel, subsidies for natural gas and electricity more than doubled while oil subsidies skyrocketed by approximately 85 percent. Most of the subsidies were in developing or “emerging market” economies. In addition, countries spent more than $500 billion to reduce energy bills, mostly in developed countries, with around $350 billion of the spending occurring in Europe. That said, bill relief did not always count as a subsidy for the IEA because the average user price was still close to market value. 

All of this took place despite the fact that the 194 nations that are parties to the Paris climate agreement also agreed to the Glasgow Climate Pact at the end of COP26. 

This pact “Calls upon Parties to accelerate the development, deployment and dissemination of technologies, and the adoption of policies, to transition towards low-emission energy systems, including by rapidly scaling up the deployment of clean power generation and energy efficiency measures, including accelerating efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies, while providing targeted support to the poorest and most vulnerable in line with national circumstances and recognizing the need for support towards a just transition.” 

The energy crisis–and the world governments’ response–highlights how difficult it is to transition away from fossil fuels, even if reliance on such a volatile energy source makes crises more likely in the first place.

“Some of these measures can be defended as social or political necessities, given the hardship that full exposure to market-driven prices could have caused,” the report authors wrote of the subsidies. “But the scale of these interventions is still a worrying sign for energy transitions. While many other measures taken by governments are serving to accelerate transitions, these price interventions worked in the opposite direction by favouring the incumbent fuels.” 

Moving forward, the IEA drew three main lessons from 2022’s record subsidies:

1. High fossil fuel prices are not an effective way to spur the renewable energy transition.
2. While the poor suffer the most when prices are high, governments need to do better at targeting relief to those who need it most.
3. It is more effective to spend money on a more efficient, resilient and climate friendly energy system than to offer relief in crises.

‘High-efficiency and low-emissions equipment and services need to be readily available, and poorer consumers need support to manage their upfront costs,” Muta and Erdogan wrote in their commentary. “It is far better for governments to spend time and money on structural changes that bring down fossil fuel demand, rather than on emergency relief when fuel prices go up.