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In 2022, governments globally issued more than $1.7 trillion in public money to support fossil fuels, through subsidies, investments by state-owned enterprises (SOE), and lending from public financial institutions, a new analysis found.
Simultaneously, financial support for renewable energy generation, grid integration of clean energy and battery storage increased, according to the International Institute for Sustainable Development (IISD). But it remains insufficient to limit global warming to 1.5°C, it added.
Public money flow towards renewable energy was only a fraction in comparison to fossil fuels, reaching $486 billion in 2022, the authors noted.
Countries were not honouring the promise made at the 26th Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change to accelerate “efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies”.
Considering fossil fuel subsidies alone, China ($266 billion), Saudi Arabia ($129 billion) and Indonesia ($72 billion) provided the largest amounts of subsidies for consumer prices.
Overall, fossil fuel subsidies expanded in 2022, to reach $1.3 trillion, but this number is likely to be higher. The paper pointed out the data was not painting the whole picture as it was based on the International Monetary Fund’s (IMF) definition of “explicit subsidies”, when governments cap retail prices below the international market price of a fuel.
In India, the explicit subsidy applies to the Ujjwala scheme and for fuel in remote locations. The country ranked fourth among countries worldwide in fossil fuel subsidies at $346 billion, equivalent to over 10 per cent of its GDP, according to a working paper by IMF.
“Consumer subsidies can also be provided when fuels are sold above international market prices, but policy interventions have tried to make them affordable through measures such as tax cuts or direct grants to reduce heating or electricity bills,” the authors of the paper added.
Several European countries due to the energy crisis with escalating prices of natural gas supported consumer prices for fossil fuels in 2022 for the first time: Germany ($49 billion), France ($42 billion) and Italy ($15 billion).
Earlier this year, a World Bank report said countries exceeded $7 trillion in subsidies for agriculture, fishing and fossil fuel sectors, exacerbating climate change. Some countries actively lowered the price of polluting fuels such as oil, gas and coal in 2021, which amounted to incentivising the overuse of fossil fuels, the report added.
Global fossil fuel subsidies by fuel type, 2010-2022 (USD, real 2022)
Source: 2010-2021: Fossil Fuel Subsidy Tracker: "Explicit Subsidies from the IMF Fossil Fuels Subsidies Data: 2023 Update
Monetary support provided to SOEs was at an eight-year high in 2022 at $350 billion, according to IISD data. As SOEs are controlled by the government, they should ideally be at the forefront of initiatives aimed at emissions reduction.
Among G20 countries, only 13 per cent of annual reports available showed that their SOEs had invested in renewable energy, the IISD found.
International financing includes international aid, export credit support and concessions such as equity, grants, loans and loan guarantees. G7 governments and Multilateral Development Banks provided an average of $30 billion a year to fossil fuels from 2020-2022, the IISD report said, based on preliminary data.
In 2022, multilateral development bank (MDB) financing alone for clean energy stood at $26 billion. Central and Western Europe received 58 per cent of the clean energy finance because the European Investment Bank channels money mostly within the European Union.
Low- and low-middle-income countries are more likely to receive financing for fossil fuels than clean energy from MDBs.
MDBs provided an annual average of $3.2 billion in direct fossil fuel finance from 2020-2022. The World Bank Group supported fossil fuels at $1.2 billion a year on average, with at least 68 per cent allocated for natural gas, which is considered a transition fuel.
Global investment in clean energy has been on the rise, however, at a much lower scale than the fossil fuel sector. In 2020, a third of investments were provided by the public sector with SOEs providing the majority of the investment in the clean energy sector.
According to the International Renewable Energy Agency’s World Energy Transitions Outlook 2023 and COP28 President, tripling global renewable energy capacity by 2030 is crucial to limiting the global average temperature rise to below 1.5°C above pre-industrial levels.
Annual average investment in renewable power generation was $486 billion in 2022. By 2030, $1,300 billion in investment is required and to fill the gap of $814 billion, governmental push is the need of the hour
Renewable energy support was primarily provided by China, the European Union and the United States as they make up around 50 per cent of the global GDP and account for 80 per cent of clean energy investments in 2023, the researchers added.
As the report was released a week before COP28, it included recommendations for UNFCCC parties convening.
The report suggested that parties should set a deadline for eliminating fossil fuel subsidies, by 2025 for all developed countries and before 2030 for developing countries. However, in parallel with policies to ensure the most vulnerable populations are protected, the report said.
Parties should coordinate a coherent approach to carbon pricing, such as introducing a carbon price floor that raises ambition and avoids distortions in trade or the shifting of carbon emissions internationally, the report added.