Fossil fuel subsidies hit new highs in 2022, despite countries’ pledges at climate COPs

For context, $1trn is also around the level of global investment in clean energy and energy efficiency in 2022, according to a recent analysis from Bloomberg NEF. 

The IEA released a policy report late last week, confirming that global subsidies for natural gas were more than twice as high in 2022 than in 2021. $346bn of subsidies were provided, compared with $141bn the year prior.

Oil subsidies, meanwhile, were 85% higher in 2022 than 2021, standing at $343bn compared with $187bn.

Coal subsidies tripled year-on-year, from $3bn to $9bn. But the IEA has reiterated that the long-term trajectory for coal is still an accelerated phase-out.

The IEA attributes much of the increase to efforts to shield consumers from rising global gas wholesale prices. It does note the socio-economic importance of consumers being able to afford energy, stating that high fossil fuel prices often result in “imbalanced or poorly sequenced approaches to energy transitions.

But it also highlights how excessive subsidies “keep fossil fuel artificially competitive with low-emissions alternatives”, thus deterring investment in clean energy in the long-term. It notes that governments have been left to scramble to spend on emergency relief, which could have been reduced with investment in structural changes that improve energy efficiency and increase clean energy.

Fossil fuel prices for consumers were kept the lowest throughout 2022 in many countries in the Middle East, the IEA notes. More than half of the total subsidies were concentrated in fossil-fuel-exporting countries.

A COP out?

The IEA expresses concern about how its findings contradict the commitments made at UN climate COPs in recent years. At COP26 in Glasgow in 2021, the final agreement explicitly mentioned fossil fuels for the first time. Nations agreed to reduce and ultimately eliminate “inefficient” fossil fuel subsidies. The UK presidency had been pushing for an elimination of all subsidies to the sector this decade, but language was weakened by fossil fuel exporters and some of the world’s fastest-growing economies such as China and India.

This commitment was reiterated at COP27 in Egypt last year. Again, language was weakened on fossil fuels in the final text, with concerns raised about hosting the conference in two fossil fuel exporting nations in two consecutive years this decade (Egypt and the UAE).

“Phasing out fossil fuel subsidies is a fundamental ingredient of successful clean energy transitions, as underscored in the Glasgow Climate Pact,” states the IEA’s report. “However, today’s global energy crisis has also highlighted some of the political challenges of doing so.”