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Indicator Assessment
Energy subsidies in the EU-15 have been estimated to amount to over EUR 29 billion in 2001 with almost three quarters oriented towards the support of fossil fuels, despite the pressures and threats that these fuels place on the environment. However, there has been a significant increase in the subsidies and support mechanisms available for renewable energies. Total funding for energy research and development has increased by approximately 24% over the period 1995 to 2006. Estimated funding for energy from the Structural Funds of the EU's Cohesion Policy is around EUR 1.5bn per year over the period 2007 to 2013, which represents around 1% of the proposed total EU budget in 2009.
Indicative estimate of the distribution of energy subsidies in the EU-15, 2001
Note: These figures are based on a synthesis of existing reports and data
Energy Subsidies in the European Union: A Brief Overview, European Environment Agency, 2004 http://reports.eea.eu.int/technical_report_2004_1/en, Eurostat
Total energy Research and Development expenditure, EU-15 Member States and EU level funding
Note: Figures are in 2006 constant prices
IEA (Member States); data for European funding are planned expenditure figures from the 6th Framework Programme.
Support for ethanol and biodiesel in the European Union in 2006
Note: N/A
GSI (2007)
‘Earmarked’ Structural Funding for energy project (€M - 2006 prices)
Note: Figures are in constant 2006 prices and show earmarked funding as of April 2008
DG REGIO
The European Environment Agency (2004) has undertaken a detailed analysis of energy subsidies for a single year, 2001. The review indicates that total 'on-' and 'off-budget' subsidies (excluding external costs) are estimated to be in the order of 29 billion Euro a year for the EU-15 (the definition of 'on-budget' and 'off-budget' subsidies is defined in the note to Figure 1 and also in the Metadata section). This figure is indicative, due to the lack of consistency of data across countries and of assumptions made.
In general, there has been a slight trend in reduction of 'on-budget' subsidies in the EU, mainly following processes of deregulation, privatisation and the opening of energy markets to competition. However, this has been balanced by an increase in 'off budget' subsidy support as governments have used fiscal measures rather than direct capital grants to support energy production and consumption.
Figure 1 shows the on- and off-budget subsidies by fuel. For that purpose, subsidies directed to the production and consumption of electricity (EUR 6.7 billion) was attributed to the fuels used to generate electricity according to their shares in production. Solid fuels then received the largest share of total subsidies in 2001, with EUR 13 billion evenly split between 'on-' and 'off-budget' subsidies. Oil and gas received in excess of EUR 8.7 billion, of which approximately 97 % was in the form of 'off-budget' subsidies. Renewable energy received the third largest off-budget subsidy of EUR 5.5 billion, while nuclear power received approximately EUR 900 million. Some support was provided to energy conservation; however, the degree of influence on the improvement in energy consumption intensity is difficult to identify.
Total public expenditure on energy Research and Development increased by 24 % between 1995 and 2006 (including EU level funding under the 6th Framework Programme averaged over 5 years from 2002 to 2006). The role of the private sector in R&D is also significant, especially in the development and commercialisation phases of new technologies, but has not been included in the indicators due to a lack of reliable data. EC funding for energy-related activities under the 7th Framework Programme , running from 2007-2013 will rise to around EUR 1016M euros per year from EUR 424M of which EUR 388M is for non-nuclear energy research (all figures are in constant 2006 prices).
Fossil fuels were the main beneficiaries of energy subsidies in 2001, despite the pressures that these fuels place on the environment. EU average annual subsidies for fossil fuels accounted for almost 75 % of total EU energy subsidies. On- and off- budget support to the coal industry is the single most important funding regime in the EU-15. State financing to coal mines was commonplace throughout the last century, and exists today in a more rationalised form to protect high-cost domestic industries from competition with cheap foreign coal imports. On-budget subsidies continued in 2001 to the coal industries in Germany (over EUR 4 billion), Spain (over EUR 1 billion), and the UK (circa EUR 0.1 billion), whereas subsidies in other countries, such as Belgium, France, Ireland, the Netherlands and Portugal have more or less ceased.
Expenditure on oil and gas subsidies is predominantly in France, the Netherlands, and the United Kingdom whereas expenditure on coal production is highest in Finland, Germany, the Netherlands, Spain and the United Kingdom. There is little aid to investment in the oil sector, reflecting the fact that the bulk of oil reserve development is occurring outside Europe. The industry across Europe is largely privatised and receives no on-budget aid for oil production, transport or storage. Italy, the Netherlands and the United Kingdom provide the highest level of support to the oil and gas sector. In the Netherlands, preferential tax treatment under the regulatory energy tax for medium and large users of gas is significant (estimates range from EUR 0.9 to 2.4 billion). The United Kingdom supports oil and gas with reduced rates of VAT (5 %) on domestic oil and gas (circa EUR 1.4 billion), while Italy allows reduced VAT rates (10 %) on domestic gas (circa EUR 0.9 billion). The amount spent on R&D associated with fossil fuel production has more than doubled from 1995 to 2006 (excluding EU funding), and its share has increased from 5% to 9%.
In 2001, nuclear power was the least subsidised form of energy, accounting for 8 % of total subsidy support. The on-budget support to nuclear energy comes from R&D grants by Member States (mainly France, Germany and Italy) and the European Community. These figures exclude the potential cost of not having to pay for full-liability insurance cover for a critical nuclear accident or fuel incident since commercial and state liabilities are limited by international treaty and such risks are too large to be commercially insurable. However, there are difficulties with producing an estimate that reflects accurately the risks associated with nuclear power. The estimate also does not include external costs associated with the nuclear fuel cycle. In 2006, nuclear R&D expenditure still accounted for approximately 42 % (in constant 2006 prices) of EU total energy R&D spending, despite a decline since 1995 where it accounted for 55 %. France has the highest absolute expenditure on nuclear Research and Development and the largest share of spending, 62 % in 2006 (constant 2006 prices).
Support for renewable energy, which is on balance considered environmentally beneficial, has increased steadily between 1990 and 2001, through the introduction of regulatory support mechanisms, such as fixed feed in tariffs, competitive tenders and purchase obligations. Support for renewable energy is now well established across the EU-15, as indicated by the estimate of it taking 19 % of all on and off-budget subsidies in 2001. Every Member State provides a combination of price support through feed-in tariffs, obligations or competitive tender, together with a range of capital subsidies and fiscal mechanisms. In 2001, total levels of support were greatest in Germany and Italy, where over EUR 1 billion was provided, mainly in the form of feed-in tariffs. France provides tax exemptions for biofuels from oil excise duties. It can be expected that subsidies for the renewable industry will fall as costs decline and the technologies mature (with the exception of large hydro, which is already considered mature).
R&D expenditure on renewables has risen substantially (by 66%) between 1995 and 2006, increasing its share of total funding from 11 % to 15% (excluding EU funding).
R&D expenditure on energy efficiency and conservation (not including combined heat and power) increased by approximately 15 % in absolute terms between 1995 and 2006 (in constant prices), maintaining a share of around 10% in total R&D (excluding MS funding). High shares of expenditure (>20% of total MS spending) are seen in Austria, Finland, Netherlands and Sweden.
Biofuel support only accounted for a small component (<6%) of the 2001 estimate of renewables subsidies in Figure 1 (e.g. minor tax exemptions in France and the Netherlands). Support for biofuels has been increasing rapidly in more recent years given Directive 2003/30/EC on Promotion of the use of biofuels and other renewable fuels for transport, and will likely increase further in future given the proposed biofuels target of 10% by 2020 in the new climate package (COM(2008)16, 17 and 19). A recent study (GSI, 2007) of EU Member States involved in the production of ethanol and biodiesel estimated that total support in 2006 was around EUR 3.7 bn covering a range of on- and off-budget subsidies. The authors considered that this was likely to be an underestimate.
In addition to future R&D funding for energy projects under the 7th Framework Programme mentioned above, another significant source of future subsidies is via the Structural Funds of the EU's Cohesion Policy . This was enshrined in the Treaties with the adoption of the Single European Act in 1986. It is built on the assumption that redistribution between richer and poorer regions in Europe is needed to progress further economic and social integration. Through four generations of Structural and Cohesion Funds programmes (the latest running from 2007-2013), the EU has invested around EUR 480 billion in the 'less favoured' regions since 1988. Funding related to energy over the latest period is 'earmarked' to a number of broad categories as indicated in Table 2 below, with estimated annual funding of around EUR 1.5bn per year. The majority of funding related to electricity, natural gas and petroleum products is linked to the development of infrastructure rather than subsidies for production, with around 38% of this going to support the development of TEN-E (Trans-European Networks - Energy). This funding for energy represents approximately 1% of the total proposed EU budget for 2009 .
Energy subsidy data in Euro 2001 Prices.
R&D funding in constant Euro (2006 market prices).
General subsidies for coal under the ECSC treaty are taken from the European State Aid Scorecard (2003) and from the Commission staff working paper on energy subsidies (European Commission, 2003a). Aid to the oil and gas, and nuclear sectors is based primarily on the European Commission (2003a) and Oosterhuis (2001) Energy subsidies in the European Union reports. Renewables data on direct price support, such as quota and fixed price systems, are taken mainly from the Eurelectric (2004). A quantitative assessment of direct support schemes for renewables report, with cross-referenced information from the EREF (2002) Environmental impact of indirect subsidies and Irish Government (2003) reports. Data on renewables capital investment, taxation support and other aid to related sources is taken from European Commission (2003a) and Oosterhuis (2001).
There is no agreed definition of energy subsidies among European Union (EU) Member States. The term may include cash transfers paid directly to producers, consumers and related bodies, as well as less transparent support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, planning consent and limits on market access. It may also cover government failure to correct market imperfections, such as external costs arising from energy production or consumption. Subsidies can be classified in many ways. The most transparent way of understanding them is to identify those that appear 'on budget' and those that are 'off budget'.
On-budget subsidies are cash transfers paid directly to industrial producers, consumers and other related bodies, such as research institutes, and appear on national balance sheets as government expenditure. Grants may be given to producers, mainly to support commercialisation of technology or industry restructuring, and to consumers. On-budget subsidies also include low interest or reduced-rate loans, administered by government or directly by banks with state interest rate subsidy.
Off-budget subsidies are typically transfers to energy producers and consumers that do not appear on national accounts as government expenditure. They may include tax exemptions, credits, deferrals, rebates and other forms of preferential tax treatment. They also may include market access restrictions, regulatory support mechanisms such as feed-in tariffs, border measures, external costs, preferential planning consent and access to natural resources. Quantifying off-budget subsidies is complex, in some cases impossible. It often requires that the benefit be calculated on the basis of differential treatment between competing fuels, or between the energy sector and other areas of the economy.
Research and development subsidies paid by Member States to all fuel sources are taken from the IEA R&D database (2008), while those paid by the European Community are taken from European Commission (2003a) and Oosterhuis (2001). Fuel taxation exemptions/differentials represent an updated version of the Oosterhuis report and are calculated using IEA (2003b) energy prices and tax data, and consumption/production figures using Eurostat 2001 data. Data on preferential tax treatment for medium and large users of gas and electricity is taken from Van Beers et al (2002); Electricity consumption subsidies represent updated versions of the Oosterhuis report using more recent taxation and consumption data, and are allocated to individual fuels on the basis of Eurostat 2001 data on primary energy inputs in the generating mix.
No units have been specified
The importance of subsidy removal or restructuring is increasingly recognised by policy-makers, who acknowledge the need to remove environmentally damaging subsidies and restructure subsidies to improve the competitiveness of environmentally beneficial products and services (European Commission, 2007). At the EU level there is a wide range of policies that could directly or indirectly impact on subsidy reform - the EU Sixth Environment Action Programme (COM (2001) 31 final) highlights the impact of environmentally harmful subsidies and state aid. However, any reform will have to take place in the context of EU competition policy.
The Commission has a set of 'Community guidelines for state aid for environmental protection' (OJ C 37, 3.2.2001), that help regulate national subsidies. For example, the EU Directive on the promotion of electricity from renewable energy sources in the internal electricity market (2001/77/EC) makes direct references to these guidelines. These guidelines have recently been updated , with the aim to ensure that "State aid measures will result in a higher level of environmental protection than would occur without the aid and to ensure that the positive effects of the aid outweigh its negative effects in terms of distortions of competition, taking account of the polluter pays principle". In particular, this is linked to three key pan-EU objectives on energy and the environment
The updated guidelines also link to the newly proposed package on climate change and energy (COM(2008)16, 17 and 19). This package is a bundle of legislative proposals aimed at realising at least a 20% reduction in emissions of greenhouse gases in 2020. It includes an improvement of the EU Emissions Trading Scheme (with a binding target of a 21% emission reduction of greenhouse gases in 2020 vs. 2005 for large sources of CO2-emissions), targets for Member States for emissions outside the EU-ETS and targets for the use of renewable energy sources. Various forms of subsidy and other policy measure will be required to ensure that these targets are met.
There is also a variety of EU funding or subsidy schemes for research, development and demonstration, such as the Intelligent Energy Europe Programme. The Cohesion policy is also expected to play a bigger role in its current cycle 2007-2013, with co-funding of measures for renewables, energy efficiency and safe energy supply actions.
Future updates to indicator
On 3-4th July 2008, the EEA organised an EIONET workshop on energy and environment with various Member State representatives, at which the issue of energy subsidies was discussed. It appears that a significant amount of information is available in the various countries, but that this is held in different authorities (e.g. environment ministries and/or agencies, economics/finance ministries and other governmental agencies).
The member countries supported the idea of collecting information on energy subsidies in a comparable manner, through the National Focal Points. However, attention should be paid to country specific ways of dealing with energy subsidies. In Germany for instance, feed-in-tariffs for renewables are not considered a subsidy because they do not affect the public budget in any way, all the costs being borne by the market participants (including the end consumer). However, they would still need to be considered as part of the off-budget subsidies described above.
To achieve this member countries supported the proposal that EEA will prepare an updated report (to the earlier EEA, 2004 report) on energy subsidy data in member countries in 2009. They recommended that the EEA prepares a questionnaire to be sent for the purpose of collecting relevant information on energy subsidies. To avoid the issue of definitions, the questionnaire will contain a number of different categories of subsidies, including both on and off budget expenditures. It would be desirable that the categories will be chosen so that the information collected can be used for multiple reporting purposes, also taking into account experiences and recommendations from other organisations such as OECD, UNECE and Eurostat.
No targets have been specified
No related policy documents have been specified
Data source(s):
Methodology and frequency of data collection:
IEA data collected annually. No regular comprehensive survey of total energy subsidies is available. Data presented is a review and synthesis of available data undertaken in 2004.
Methodology of data manipulation:
Strengths and weaknesses (at data level):
See section on "Indicator Definition" regarding the lack of a common definition of subsidies.
No methodology for gap filling has been specified. Probably this info has been added together with indicator calculation.
No methodology references available.
No uncertainty has been specified
No uncertainty has been specified
No uncertainty has been specified
For references, please go to https://www.eea.europa.eu/data-and-maps/indicators/energy-subsidies-1/energy-subsidies-assessment-draft-created or scan the QR code.
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