Page 22 - EurOil Week 09 2023

EurOil ENERGY TRANSITION EurOil

providing targeted support to the poorest and households and then limited the possibility for
most vulnerable”. increases in price.
The IEA found that oil subsidies grew by Exemptions from various taxes and levies
around 85%, while natural gas and electricity were common. The South African government
consumption subsidies more than doubled. As froze the general fuel levy on petrol and diesel
noted in the latest IEA’s World Energy Outlook, from February 2022, and reduced it by ZAR1.50
high fossil fuel prices were the main reason for ($0.9) per litre from April to June 2022.
upward pressure on global electricity prices, Guyana removed the excise tax on gasoline
accounting for 90% of the rise in the average and diesel in March. The United Kingdom cut
costs of electricity generation worldwide. Natu- fuel duty, and Belgium reduced the VAT on elec-
ral gas alone accounted for more than 50%. tricity bills from 21% to 6%.
The IEA only looked at consumption subsi- Easing payment terms or banning disconnec-
dies and did not account for production subsi- tions were also in evidence. Japan eased gas and
dies, such as tax breaks or direct payments that electricity payment terms for those struggling
reduce the cost of producing fossil fuels. to pay. In Spain, a “vital minimum supply” obli-
As long ago as 2020, before the current rise gation for utilities was enacted from September
in consumption subsidies, the International 2021, ensuring vulnerable households unable to
Monetary Fund (IMF) found that global fossil pay their electricity bills would still get supplied
fuel subsidies were $5.9 trillion, or 6.8% of GDP, for a period of 10 months.
and were expected to climb to 7.4% of GDP in In some countries, compensation mecha-
2025 as the share of fuel consumption in emerg- nisms have been adopted for different affected
ing markets – where price gaps are generally groups of consumers, including households,
larger – continued to rise. Just 8% of the 2020 businesses and industrial consumers. In
subsidy reflected undercharging for supply costs India, the Pradhan Mantri Ujjwala Yojana
(explicit subsidies) and 9% for undercharging for subsidy scheme, which supports access to liq-
environmental costs and foregone consumption uefied petroleum gas (LPG) for the poorest
taxes (implicit subsidies). segments of the population, saw its cost reach
The IEA has been monitoring fossil fuel $820mn.
subsidies for many years, identifying situations In Germany, the government implemented
where consumers pay less than the market price several additional payments to help vulnerable
of fuel. Preliminary estimates for 2022 indicated communities pay their heating bills (households
that oil subsidies increased by around 85%, on housing benefits, apprentices and students
while subsidies for natural gas and electricity with student loans). In South Korea, vouchers for
consumption more than doubled, said the new energy expenses – including electricity, gas, LPG
report. and heating – were provided to around 1.2mn
Governments worldwide implemented var- vulnerable households in 2022, and the voucher
ious measures to mitigate the worst effects of amounts were raised twice during the year.
the energy crisis, such as fixing end-user tariffs, Phasing out fossil fuel subsidies is crucial for
capping fuel or electricity price increases, and a successful clean energy transition, as empha-
introducing price ceilings. However, many sub- sised in the Glasgow Climate Pact, stressed the
sidy reform programmes were interrupted, and IEA. However, the current global energy crisis
some countries extended existing subsidies. highlights the political challenges involved in
Nearly all of the consumption subsidies doing so.
identified were found in emerging and devel- Although high and volatile fossil fuel prices
oping economies, with over half in fossil-fuel emphasise the unsustainability of the current
exporting countries. While most interventions energy system and underscore the benefits of
in advanced economies did not meet the defi- energy transitions, the volatility comes with sig-
nition of fossil fuel consumption subsidies, they nificant economic and social costs. High fossil
were still a significant drain on fiscal resources, fuel prices hit the poor the hardest, but subsidies
with over $500bn in extra spending committed tend to benefit the better-off, making effective
to reducing energy bills in 2022. targeting essential.
The IEA logged various ways of fixing prices Well-designed policies should prevent fuel
or capping price increases. supply from getting too far out of step with
The Peruvian government decided in April demand, with resources deployed to provide
2022 to temporarily include a number of trans- lasting protection against volatile fuel prices.
port fuels in the State Fuel Price Stabilisation This means anchoring market-based prices in a
Fund to reduce the rise in prices. Thailand intro- broader suite of policies and measures that ena-
duced a diesel price cap of THB30 ($0.85) per ble households and industries to make cleaner
litre. energy choices. High-efficiency and low-emis-
El Salvador introduced price caps for gasoline sions equipment and services must be readily
and diesel products. Egypt extended the period available, and poorer consumers need support
for subsidising electricity, while it had previously to manage their upfront costs.
been planning to stop doing so by the end of the Governments should focus on structural
fiscal year 2021-2022. changes that reduce fossil fuel demand, rather
France enacted a ‘tariff shield’ that ini- than emergency relief when fuel prices rise, con-
tially froze electricity and gas retail tariffs for cluded the IEA. ™

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