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Contrasting pathways: Fossil fuel subsidies amidst renewable surge!
It may seem absurd at a time when many countries are more committed than ever to net-zero goals and building out renewable energies, that subsidies for fossil fuels have reached an all-time high. After a noticeable dip in 2020 due to Covid, preliminary estimates from the International Energy Agency show global subsidies doubled to more than USD 1 trillion in 2022.
Heightened fossil fuel prices are a key reason for this increase as policy interventions aim to shield consumers from ballooning prices. In 2021, Russia was the largest single provider of fossil fuel subsidy payments, followed by Iran and China. In contrast, Europe and the US spent a combined USD 79 billion on renewable energy subsidies in 2021.
Incentives are set to grow through the increasing budgets of programs such as the Inflation Reduction Act in the US and the Net Zero Industry Act in Europe. While fossil fuel subsidies mostly come in the form of direct price support or lower tax rates (i.e. OpEx that incentivizes consumption of fossil fuels), renewable energy subsidies are typically CapEx, focusing on incentivizing capacity buildout. They come in the form of things like investment and production incentives, tax incentives and breaks, guarantees, favorable loans and purchase agreements.
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Fossil fuel subsidies have risen despite the renewable energy surge!
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