PARIS, 28 Nov. - (ANA) - Government support measures for the production and consumption of fossil fuels decreased sharply in 2023, as energy prices softened from record highs seen in 2022. However, many measures remained in place and, in some cases, even increased. 

 

This is despite pledges to phase out inefficient fossil fuel subsidies and increase climate action.

 

New OECD and IEA data show that the fiscal cost and implicit support of government support for fossil fuels across 82 economies dropped by almost one third, from USD 1.6 trillion in 2022 to USD 1.1 trillion in 2023.

 

Many governments maintained substantial initiatives to alleviate the burden of high energy bills on households and firms, most of which translated into support for fossil fuel production and consumption. Policy responses to the 2022 energy crisis were largely intended as temporary measures, but many are still in place. In addition, most of this support was not systematically targeted to those most in need, raising both equity and efficiency concerns.

 

The OECD and IEA continue to call for more ambitious action to phase out inefficient fossil fuel support and re-direct public funding toward the development of low-carbon alternatives, alongside improvements in energy security and energy efficiency. Governments should also reform existing support measures to better target those most in need. Given the high costs of inaction, governments should reaffirm and implement their commitments to the Sustainable Development Goals by phasing out and reforming inefficient fossil fuel support, thereby aligning fiscal policies with climate objectives.

 

 

 

 

- The  fiscal  cost  of  government  support  for  fossil  fuels fell  by  around  one  thirdin  2023  toUSD1.1 trillion, down from USD 1.6trillion in 2022, reflecting in large part a decline in energysupply costs from record highs in 2022. This decline lowered the reference price, and thusthe estimated value of fossil fuels sold below this reference price. Yet, with many measuresto support production and consumption of fossil fuels still in placeor increasing, thefiscal costof support to fossil fuels remains elevated relative toits historical average.

 

- Most (90%) of the fiscal cost of support related tothe consumption of fossil fuels. The fiscalcost ofsupport for residential users increased by 29%to record highs, reaching USD 189.3billion in 2023 (from USD 146.4billion in 2022), while formanufacturing and other industriesitincreasedby14% to USD 103.8 billion in 2023(from USD 90.9 billion in 2022). Most of thissupport lacked systematic targeting towards those in greatest need, raising both equity andefficiency concerns.

 

- Economic incentives to decarbonisefrom fuel taxes, carbon taxes, emissions trading systems(ETSs) and price-reducing  support mechanisms –summarised in the  net  Effective CarbonRate (Net ECR) declined compared to 2021. While carbon taxes and ETSpricessaw modestincreases, the increase in support measures throughdirect budgetary transfersfor fossil fuelsand low fuel excise rates led to a decrease in the average NetECR to EUR  14.0/tCO2e in2023 from EUR 17.9/tCO2e in 2021.

 

— In 2023, as in2021, the share of GHG emissions covered by a positive Net ECRremainedunchanged was42%;27% of GHG emissions are covered by explicit carbon prices (carbontaxes or ETSs).

 

- The  high fiscal  costof  government  support  for  fossil  fuelsand  low Net  ECRhighlight  thechallenges  of  staying  on  track  with  net  zero  commitments  in  the  face  of economic  andgeopolitical pressures.

 

- Reforms  should  focus  on better  targetingthose  most  in  need andphasingoutinefficientsupport for fossil fuels as soon as possible to enable the release of much-needed resourcesfor the net zero transitionand help accelerate innovationforenergy efficiency.

 

- Given  the  high  costs  of  inaction,  governments shouldreaffirm  and  implement  their  SDGcommitment to phase out and reform inefficient support to fossil fuels to align fiscal policywith climate goals.   - (ANA) -

 

 

For the full report, visit: https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/11/oecd-inventory-of-support-measures-for-fossil-fuels-2024_bd47de52/a2f063fe-en.pdf

 

 

AB/ANA/28 November 2024 - - -