PARIS - New OECD data shows that total fossil fuel subsidies to consumers and producers across G20 economies rose to USD 190 billion in 2021 from USD 147 billion in 2020 as energy prices rose with the rebound of the global economy.
Support for producers reached levels not previously seen in OECD tracking efforts, at $64 billion in 2021 – up almost by 50% year-on-year, and 17% above 2019 levels. Those producer subsidies (partly) offset low energy prices during the COVID-19 slump, as well as losses from domestic consumer price controls as global energy prices surged in early 2021. Consumer support reached USD 115 billion, up from USD 93 billion in 2020.
The data highlight the ongoing challenges faced by governments in targeting support measures to households and businesses most in need – including in responding to surging energy prices since early 2021 - and avoiding dampening incentives to reduce fossil-based energy.
Separate OECD analysis focused on announced government responses to the energy price crisis reports that of USD 246 billion in measures put in place for households and firms across 42 countries since October 2021 and ending by December 2022, USD 169 billion is in the form of direct support for fossil fuels consumption. The work – which covers OECD countries and Argentina, Bulgaria, Brazil, China, Indonesia, India, Romania, and South Africa – raises the prospect of significant further increase in support amounts in official 2022 Inventory data in due course.
The data highlight the ongoing challenges faced by governments in targeting support measures to households and businesses most in need, and in maintaining consistent incentives to reduce fossil-based energy and encourage the transition to carbon neutrality. Seeking and exploiting synergies between climate and energy security policies could support international climate goals while helping guard against shifting market and geopolitical forces.
Support to fossil fuel production is not aligned with a low carbon transition
Countries should resist raising government support for fossil fuels in response to the global surge in energy prices and the economic impacts of the pandemic. Instead, given the existential threat of climate change and the need for a green recovery, they should accelerate investment in sustainable energy infrastructure and the creation of green jobs, as well as meeting the UN Sustainable Development Goals, in particular SDG 7, to ensure access to affordable, reliable, sustainable and modern energy for all.
The OECD Inventory shows that fossil fuel support fell by 10% to USD 183 billion in 2020 in 50 advanced and emerging economies. The transport sector alone saw a 15% drop in support due to the slump in fuel use from restrictions on mobility during the pandemic. Among fuels, petroleum has experienced the largest drop, with support down 19%.
On the production side, the data show a 5% rise in direct support for the production of fossil fuels (see producer support estimate in the graph above), some of this the result of large government bailouts to state oil and electricity companies. Were this support to persist beyond COVID-related emergency funding, it would become part of a structural policy landscape that would only exacerbate efforts to phase out fossil fuel support.
COVID-19 recovery measures being implemented around the world offer an opportunity to shift public resources into areas that support environmental and climate goals.
