This indicator is based on the concept developed by the World Trade Organization (WTO) through the Agreement on Subsidies and Countervailing Measures (ASCM), which classifies subsidies and government interventions into four main categories:
- direct transfers: direct expenditures by governments to recipients, which could be either consumers or producers
- tax expenditures: the amounts of tax benefits, or preferences, received by taxpayers and forgone by governments
- income or price support mechanisms: various types of economic mechanisms, most of which can be considered cross-subsidies, i.e. involve transferring amounts of money from groups of people/technology/territory to another specific group
- RD&D budgets: various types of provisions for financial and/or other preferential mechanisms to support innovation.
For more information on the concept and definition of energy subsidies, see Annex 5 to EC .
A recurring obstacle preventing the pledge to phase out fossil fuel subsidies from being realised is the lack of a shared definition internationally . This repeatedly stressed barrier is addressed by the Commission under the Regulation on the Governance of the Energy Union and Climate Action through the adoption of ‘implementing acts… , including a methodology for the reporting on the phasing out of energy subsidies, in particular for fossil fuels’ . As the European Commission published Implementing Regulation (EU) 2022/2299 in November 2022, the basis of the current assessment for this indicator is the data-gathering exercise performed by external consultants for the European Commission and published in the Commission report on energy subsidies in the EU accompanying the 2022 State of the Energy Union report. The methodology behind the data collection and validation process is discussed in detail in Annex 5.1 to EC .
The data were deflated to 2021 prices as published in EC .
This indicator is a headline indicator for monitoring progress towards meeting the objectives of the 8th EAP. It contributes mainly to monitoring progress in relation to aspects of Article 3(h), which requires, inter alia, ‘phasing out environmentally harmful subsidies, in particular fossil fuel subsidies, at Union, national, regional and local level, without delay… by... (ii) setting a deadline for the phasing out of fossil fuel subsidies consistent with the ambition of limiting global warming to 1,5°C’ . The European Commission communication on the 8th EAP monitoring framework specifies that this indicator should be used to monitor the reduction in ‘environmentally harmful subsidies, in particular fossil fuel subsidies, with a view to phasing them out without delay’ .