Page 18 - FSUOGM Week 09 2023

FSUOGM ENERGY TRANSITION FSUOGM

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

P18 www. NEWSBASE .com Week 09 02•March•2023