#COP27: First things first, end harmful subsidies
Ludovic Subran
Chief Economist at Allianz, Senior Fellow at Harvard University | Economics, Investment, Insurance, Sustainability, Public Policy
Abolishing fossil fuel subsidies and directing the funds to renewable energy seemed like an easy win for the climate. In the 2020 pandemic crisis, fossil fuel subsidies fell to a historic low of 0.5% GDP in the core economies[i], almost exactly the size of the funding gap needed to comply with the Paris Accord. But the COVID recovery measures did not encourage to further reduce fossil subsidies and re-purpose them for the energy transition.
Rather we saw fossil subsidies rise back to USD 700 billion or 0.86% of GDP in 2021 which is in line with to the 10-years average of 0.88% of GDP. But that seems to be only a glimpse on what is about to come as the result of the energy crisis caused by the invasion of Ukraine. Already in normal times, getting rid of energy subsidies comes with steep costs for consumers, particularly the poorest households. Fearing the de-industrialization of Europe and desperately attempting to mitigate the impacts of quickly spreading energy poverty, EU governments are ramping up fossil subsidies. This includes everything from price caps for petrol and gas to investment subsidies for building up the substitute fossil supply chain infrastructure.
The three EU countries in the core country sample have had low average subsidies around 0.34% of GDP over the last 10 years and over all EU countries, fossil subsidies were in the region of 0.44% of GDP over the last 10 years.
Taking a closer look at the EU support measures in reaction to the Ukraine war, the share contributing to additional fossil energy subsidy is in the range of 1% of GDP, consequently more than tripling the expected fossil subsidies in the EU.
Figure 1: Fossil subsidies in 51 core economies
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Sources: IEA, WBG, OECD, Allianz Research.
[i]?Following the joint OECD and IEA analysis this includes Australia, Brazil, Canada, the People’s Republic of China, Germany, France, United Kingdom, Indonesia, India, Italy, Japan, Korea, Mexico, Russian Federation, Republic of Türkiye, United States, South Africa, Algeria, Angola, Argentina, Azerbaijan, Bahrain, Bangladesh, Bolivia, Brunei Darussalam, Colombia, Ecuador, Egypt, Gabon, Ghana, Iraq, Iran, Kazakhstan, Kuwait, Libya, Malaysia, Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Sri Lanka, Chinese Taipei, Thailand, Trinidad And Tobago, Turkmenistan, Ukraine, United Arab Emirates, Uzbekistan, Venezuela and Viet Nam (https://www.oecd.org/newsroom/support-for-fossil-fuels-almost-doubled-in-2021-slowing-progress-toward-international-climate-goals-according-to-new-analysis-from-oecd-and-iea.htm).
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2 年The truth is that it is not that simple. Take Sub-Saharan Africa, where 22 countries (out of 48) have abundant and cheap fossil fuels (coal in South Africa). Moreover, all countries (except South Africa) are non-industrialised and have an average poverty rate of 40% of the population... This means that global responses to climate change should be region-specific but coordinated at the global level. With the war in Ukraine and the energy crisis it caused, we can see that some African economists were right all along in suggesting that yes to the energy transition in Africa but not at the expense of industrialisation with the number of poor people we have in Africa. Now the EU directive suggests that gas is clean energy, which was not so clear before the war in Ukraine. The African voice is under-represented, because we were saying this along with some european friends long time ago ...
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2 年yes, it is a pity. direct payments to cover some pain of consumers and industries combined with a focus on incentives for the energy transition (and less red tape) should put alternative energy sources into overdrive