The ongoing energy price hike should be an indication that governments should accelerate investment in sustainable energy infrastructure, rather than encourage fossil fuel subsidies, according to the Organisation for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA).
The organisations stated that countries should also meet UN Sustainable Development Goals, particularly SDG 7, which focuses on providing everyone with affordable, reliable, sustainable and modern energy. This follows the pledge made by G20 countries in 2009 to reduce and eventually remove fossil fuel subsidies.
Despite the pledge, the OECD and IEA reported that fossil fuel subsidies are still being encouraged and not enough emphasis is being placed on developing low-carbon alternatives.
Although government support for fossil fuels decreased in 2020 - $351bn, down 29% from 2019 - according to OECD and IEA data, this was mostly the ‘mechanical result’ of falling fuel prices and demand during the Covid-19 pandemic.
Due to mobility restrictions, the transport sector saw a 15% decrease in support and petroleum support plummeted 19% from 2019.
As energy prices rise, consumption subsidies will likely rise too, leading Mathias Cormann, Secretary-General, OECD, to say, “We must ensure that fossil fuel support continues to fall and Covid-19 recovery spending is focused on measures that are positive for the environment and the climate.”
He added that this support must be designed to help the most vulnerable.
Government bailouts to state oil and electricity companies partially contributed to a 5% rise in support for the production of fossil fuels across 50 advanced and emerging economies.
The organisations also stated that Covid-19 recovery measures implemented globally could offer an opportunity to move public resources into prioritising environmental and climate goals. OECD data revealed a doubling of public spending on green recovery measures in 44 ‘major economics’ since April 2021, though it only accounts for 21% of total spending on Covid-19 economic recovery measures.
An OECD analysis showed that total fossil support fell by 10% to £183bn in 2020. Across 42 economies, the IEA found that although consumption subsidies dropped to $180bn in 2020, they are due to increase by 244% this year to $440bn.
OECD with the International Institute for Sustainable Development also produced the interactive Fossil Fuel Subsidy Tracker, which provides estimates of various forms of government support for fossil fuels in 81 major economies.