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Energy crisis: Governments spent more than €900 billion on fossil fuel subsidies in 2022

Governments invested a record amount of money in fossil fuel subsidies during 2022.
Governments invested a record amount of money in fossil fuel subsidies during 2022. Copyright Canva
Copyright Canva
By Charlotte Elton
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The International Energy Agency has urged world leaders to spend money on clean energy solutions rather than fossil fuel subsidies.

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Governments spent more than €900 billion on fossil fuel subsidies in 2022, the highest figure ever recorded.

According to a new report by the International Energy Agency (IEA), the eye-watering sum is more than double the 2021 total.

The record-busting figure is linked to Russia’s invasion of Ukraine.

The war - and subsequent disruption to Russian fossil gas exports - sent energy prices soaring.

To shield consumers, governments poured money into fossil fuel subsidies like petrol price caps, policies which see governments limit the price fuel companies can charge for petrol - and pay these companies the difference.

But the huge spend threatens climate goals, warns the IEA’s senior energy analyst Toru Muta and energy analyst Musa Erdogan.

“Our analysis shows that many of these government measures were not well targeted,” they write in an analysis of the report, which is entitled Fossil Fuels Consumption Subsidies 2022.

A “And while they may have partially protected customers from skyrocketing costs, they artificially maintained fossil fuels’ competitiveness versus low-emissions alternatives.”

Why did governments spend so much money on fossil fuel subsidies in 2021?

Subsidies for oil and ‘natural gas’ (aka fossil gas) soared last year.

Governments spent $343 billion (€321 billion) on oil subsidies last year, an 85 per cent increase on 2021. $346 billion (€323 billion) was poured into natural gas subsidies, more than double the previous year’s investment.

Coal subsidies tripled year-on-year, from $3 billion (€2.8 billion) to $9 billion (€8.4 billion).

A further $399 billion (€373 billion) went into electricity subsidies.

These cuts were largely intended to shield consumers from extreme energy market volatility in light of the war in Ukraine.

They took many forms, including energy caps. For example, Thailand introduced a price cap of THB 30 (€ 0.82) per litre of diesel, while the UK government temporarily cut fuel duty on petrol and diesel.

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In their latest report, the International Energy Agency have urged governments to invest in the clean energy transition.Canva

What do fossil fuel subsidies mean for the planet?

Fossil fuel extraction and consumption is the biggest cause of global warming.

To limit climate-change induced temperature increases below 2 degrees Celsius, society must rapidly decarbonise.

In 2021, signatories to the Glasgow Climate Pact committed to phasing out “inefficient fossil fuel subsidies.”

But the energy crisis has turned back the clock on this progress.

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It is necessary to protect consumers from the worst impact of fossil fuel price rises, the IEA report says.

But authorities must be mindful of the environmental consequences - and direct their support effectively.

“During an energy crisis, government commitments to phasing out subsidies are overshadowed by the priority to protect consumers,” the report reads.

“The resulting government actions reduce hardship but also weaken incentives for consumers to save or to switch to alternative sources of energy, and use up public funds that could be spent in other areas, including on clean energy transitions.”

Fossil fuel subsidies are ultimately an inefficient way of helping consumers, the IEA analysts conclude. Instead, governments should invest in clean energy infrastructure.

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“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,” the report authors urge.

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