Global fossil fuel subsidies almost doubled in 2021, analysis finds

Support amid huge industry profits is a ‘roadblock’ to tackling climate crisis, says International Energy Agency

Global public subsidies for fossil fuels almost doubled to $700bn in 2021, analysis has shown, representing a “roadblock” to tackling the climate crisis.

Despite the huge profits of fossil fuel companies, the subsidies soared as governments sought to shield citizens from surging energy prices as the global economy rebounded from the Covid-19 pandemic.

Most of the subsidies were used to reduce the price paid by consumers. This largely benefits wealthier households, as they use the most energy, rather than targeting those on low incomes. The subsidies are expected to rise even further in 2022 as Russia’s war in Ukraine has driven energy prices even higher.

“Fossil fuel subsidies are a roadblock to a more sustainable future, but the difficulty that governments face in removing them is underscored at times of high and volatile fuel prices,” said Fatih Birol, the director of the International Energy Agency, which produced the analysis with the OECD.

“A surge in investment in clean energy technologies and infrastructure is the only lasting solution to today’s global energy crisis and the best way to reduce the exposure of consumers to high fuel costs,” said Birol.

“Significant increases in fossil fuel subsidies encourage wasteful consumption, while not necessarily reaching low-income households,” said Mathias Cormann, the OECD secretary general. “We need to adopt measures which protect consumers [and] help keep us on track to carbon neutrality, as well as energy security and affordability.”

The analysis covers 51 key countries and represents 85% of the world’s total energy supply. Subsidies that kept fossil fuel prices artificially low more than tripled to $531bn in 2021, compared with 2020. Subsidies for oil and gas production reached a record level of $64bn. The IEA said in May 2021 that no new fossil fuel projects should be developed if the world is to meet its climate goals.

“A period of soaring fossil fuel energy prices, when oil and gas companies are posting record-breaking profits, should be the ideal time for governments to eliminate fossil fuel production subsidies – so to see rising government support for fossil fuels now is infuriating,” said Gyorgy Dallos, at Greenpeace International.

“Governments need to stick to their green pledges. On the consumer side, they urgently need to replace untargeted support measures with targeted income support to people experiencing fuel poverty.”

The G20 agreed in 2009 to phase out “inefficient” fossil fuel subsidies and, in 2016, the G7 set a deadline of 2025. But little progress has been made.

The $697bn total covers explicit subsidies, including price reductions, government funding and tax breaks. Estimates including implicit subsidies, ie the cost of the climate and air pollution damage caused by fossil fuels, are far higher. These amounted to $5.9tn in 2020, according to the International Monetary Fund, or $11m a minute.

The Guardian revealed in July that the oil and gas sector has made an average of $1tn a year in pure profit for the last 50 years. These vast sums have provided the power to “buy every politician, every system” and delay action on the climate crisis, said Prof Aviel Verbruggen, the author of that analysis.

The energy crisis is proving extremely profitable for oil companies, even without subsidies. In the first six months of 2022, five leading companies – BP, Shell, ExxonMobil, Chevron and Total – made adjusted profits of nearly $100bn. The figure is the same sum that rich nations had promised to poor nations to help deal with the climate crisis by 2020, but failed to deliver.