Fossil fuel subsidies ‘have not decreased’ – European Commission

The UK spends the most of any EU nation on subsidising fossil fuels – followed by Germany, France, Italy and Spain – according to a new report from the European Commission (EC), Energy prices and costs in Europe. 

While these countries spent more money on supporting renewables, such as wind and solar, the Commission stated that national policies may need to be reinforced to limit fossil fuel support and facilitate decarbonisation in line with the Paris Agreement. 

Oil, coal and natural gas subsidies are estimated to total €55bn across the bloc, with the UK alone offering more than €12bn. Using Eurostat data, the EC concluded that fossil fuel subsidy payments remained stable across all sectors – from energy generation to transport and manufacturing – in 2016, the last year for which data is fully available. 

The report notes that there are multiple legitimate reasons for intervening in the energy sector with financial and regulatory support, including correcting imperfect markets and providing long-term strategic direction. However, it also admits that there are subsidies which ‘changing circumstances have rendered redundant, or excessive.’ 

In late December, EU legislators adopted a ‘clean energy package’ of laws that included a mandate to end all subsidies for existing coal plants by the middle of 2025. Previous talks on the legislation had been abandoned after Poland insisted upon using capacity mechanisms to keep its coal plants online.

Capacity mechanism measures pay coal power stations to remain on stand-by in the event of a sudden spike in electricity demand. These so-called peak generators are designed to prevent blackouts during winter weather events, but they would not be able to turn a profit without government support.

The G20 group of countries had also pledged to phase out inefficient fossil fuel subsidies back in 2009. However, the EC has found that subsidies for oil, gas and coal are even higher outside of the EU. Subsidies to petroleum products, primarily tax reductions, account for the largest share of such payments. 

Meanwhile, energy subsidies in general have risen across all 28 EU member states from €148bn in 2008 to €169bn in 2016. The report says the increase was largely due to the growth in renewable energy subsidies, which reached €76bn in 2016. 

The EC believes that improvements to market design are now helping to finance the transition to clean energy with company revenues rather than government support. Perhaps most importantly, it sees Europe as providing a model for successful green investment initiatives worldwide. 

‘EU financial instruments and the EU sustainable finance initiative is working to reorient global capital markets to have a better understanding of and thus facilitate the provision of investment capital for low carbon technologies,’ the report concludes.

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