Subsidies for fossil fuels increased in 2021

According to a new analysis by the Organization for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA), the annual support for fossil fuels doubled in 2021 to nearly $700 billion, slowing progress towards global community climate goals. Economic recovery contributed to the increase in subsidies and it will rise even more in 2022 due to the current energy crisis and high fuel prices.

The world’s major economies have sharply increased support last year for the production and consumption of coal, oil, and natural gas. New data show that overall government support for fossil fuels in 51 countries worldwide amounted to $697.2 billion, compared to $362.4 billion in 2020.

Many countries are struggling to balance longstanding pledges to phase out inefficient fossil fuel subsidies with efforts to protect households from rising energy prices, OECD and IAE said in a statement.

Subsidies increase as energy prices rose with the rebound of the global economy in 2021. Most of the support went to reducing prices paid by consumers.

Consumption subsidies are anticipated to rise even higher in 2022 due to the war in Ukraine and higher energy prices. Governments are raising subsidies for fossil fuels to protect citizens, but the result is that the industry is making huge profits.

The OECD and IEA provided estimates of public subsidies for fossil fuels that include OECD member states, the Group of 20 (G20) major economies and the European Union, and 33 other main energy producers and consumers, representing a total of 85% of the world’s total energy supply.

Total fossil fuel support in G20 rose to USD 190 billion in 2021 from $147 billion.

Support for fossil fuel producers rose almost 50% to a record $64 billion or 17% above the level registered for 2019.

The OECD’s analysis compiled budgetary transfers and tax benefits related to the production and use of coal, oil, gas, and other petroleum products for G20.

The document shows the subsidies have partly offset producers’ losses from domestic price controls last year. Global energy prices surged in late 2021.

As the energy crisis continues, oil companies are making record profits. The combined gains for the first quarter of 2022 are close to $100 billion.

Recently, United Nations Secretary-General António Guterres urged governments to tax extra profit in the oil and gas sector and use the funds to support the most vulnerable in the energy crisis.

The IEA pointed out the prices paid by domestic consumers are kept artificially low using measures such as direct price regulation, pricing formulas, border controls or taxes, and domestic purchase or supply mandates.

Analyzing the situation in 42 economies, the IEA said consumer support more than tripled to $531 billion in 2021 due to the surge in energy prices.