Subsidising fossil fuels contradicts EU’s climate objectives

A decade ago, EU member states committed to phasing out fossil fuel subsidies by 2025. However, as of today, not a single EU country has spelled out a plan to phase out public funding for fossil fuels. This is despite the climate emergency the world is facing, and the mass demonstrations led by school children calling on governments to take radical action to cut greenhouse gas emissions.

Fossil fuel subsidies distort markets and disincentivise investments in renewable energy and energy efficiency. They impose large fiscal costs on governments and drain scarce financial resources away from required investments into the decarbonisation of all sectors of the economy. In addition, they negatively impact local environments, water sources and cause illness and premature deaths due to local air pollution and heightened congestion.

These subsidies can take different shapes: direct funding, preferential treatments, or tax breaks in most of the cases. They always stem from the same source: taxpayer money.

Unfortunately, not a lot of Europeans are aware that their tax money feeds the fossil fuel industry, in ways that exacerbate the effects of climate change and its dreadful impact on citizens and the environment. Nor do governments pay enough attention to the article 2.C of the Paris Agreement where all parties have committed to “make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

Putting an end to fossil fuel subsidies should be the first step to redirect financial flows towards the clean energy transition. Yet, European Union member states still turn a blind eye on the pledge they made ten years ago to gradually remove subsidies to fossil fuels.

Despite their various commitments, EU countries continue to subsidise the production and consumption of oil, gas, coal and fossil fuel-based electricity. In January 2019, the European Commission estimated fossil fuel subsidies provided by EU governments at €55bn per year between 2014 and 2016, “implying that EU and national policies might need to be reinforced to phase out such subsidies”.

Previous research published by the Overseas Development Institute (ODI) and Climate Action Network (CAN) Europe suggests the total amount of subsidies might be even greater than what is captured in the European Commission report. Including public finance institutions and state-owned enterprises, the total support to the fossil fuel industry by 11 EU member states, the EU budget and EU public banks was estimated to be €112bn per year between 2014 and 2016.

To govern the EU’s climate and energy policies and ensure the climate, renewable energy and energy efficiency targets are reached by 2030, the EU has established a planning, monitoring and reporting system called the Energy Union Governance Regulation. Under this framework, member states are obliged to submit National Energy and Climate Plans (NECPs), which must be finalised by the end of this year. Recognising the ongoing challenges of ending support for fossil fuels, this regulation requires governments to report on current levels of energy subsidies as well as the “national policies, timelines and measures planned to phase out energy subsidies, in particular for fossil fuels”.

Most of the draft NECPs were published in December 2018. An expert review from September this year, analysing the information provided in the draft NECPs of the 28 member states, found that a number of the plans made no mention of fossil fuel subsidies at all, despite previous research that shows continued state support to oil, gas or coal. Bulgaria, Denmark, France, Hungary, the Netherlands and the United Kingdom claim no fossil fuel subsidies at all in their countries. This despite the fact the European Commission, for instance, found that the UK provides €12bn each year the fossil fuel industry through tax breaks and budgetary transfers alone, more than any other EU state.

The draft NECPs reveal that not only do EU countries plan to maintain many existing fossil fuel subsidies, the United Kingdom, Germany, Greece, Poland, and Slovenia even plan to introduce new such measures by 2030. For instance, Greece mentions that it will introduce  subsidies aimed at replacing diesel boilers with fossil gas-fired boilers, while Poland intends to subsidise underground gas storage and the use of liquified natural gas for transport.

Member states ought to list all existing subsidies to fossil fuels, and provide comprehensive phase-out plans in their final NECPs due by the end of this year, as requested by the European legislation governing the 2030 climate and energy framework.

Fossil fuel subsidies clearly stand in the way of climate action. By ending these costly and counterproductive measures, governments can instead free up the necessary resources to support the clean energy transition, which is imperative if European countries are to comply with the Paris Agreement goals and give the world a chance to limit temperature rise to 1.5°C.