Fossil fuel subsidies (8th EAP)

The EU’s Eighth Environment Action Programme, in line with EU and international commitments, calls for an immediate phase out of fossil fuel subsidies. Fossil fuel subsidies remained relatively stable, at about EUR 52 billion (2021 prices), over the period 2015-2021. Most EU Member States have no concrete plans on how and by when they will phase out these subsidies. Moreover, in response to recent high energy prices, some Member States have increased fossil fuel subsidies. Therefore, it is unlikely that the EU will make much progress towards phasing out fossil fuel subsidies by 2030.

Published: ‒ 25min read

Fossil fuels are non-renewable sources of energy, and their production and use contribute significantly to climate change and pollution. In line with international commitments — such as the G20 Pittsburgh Summit and COP26 Glasgow Climate Pact — and the European Green Deal , the EU’s Eighth Environment Action Programme (8th EAP) calls for an immediate phase out of subsidies for fossil fuels (such as coal, gas and oil). Progress towards this is monitored as part of the European Commission’s State of the Energy Union report .

Fossil fuel subsidies remained more or less stable, at about EUR 52 billion (2021 prices), over the period 2015-2021. The increase of EUR 3 billion from 2015 to 2018 was mainly due to an increase in subsidies in the transport sector. The decrease of EUR 1 billion from 2018 to 2019 was mostly due to decreases in the energy and industry sectors. The large decrease, of EUR 3 billion, from 2019 to 2020 was caused by the fall in transport activities as a result of lockdown measures introduced during the COVID-19 pandemic. This also caused a decrease in transport-related fossil fuel tax benefits . Although data for 2021 are preliminary, it seems that subsidies in this year were similar to those in 2020, as expected given that the EU was still recovering from the crisis caused by the global COVID-19 pandemic .

Member States are required to include in their annual national energy and climate progress reports information on phasing out energy subsidies, particularly for fossil fuels . According to these reports , many countries have ambitions to move away from fossil fuel use, but only a few (Denmark, Germany, Ireland, Italy and Sweden) have translated these ambitions into laws or clear plans that specify when they intend to phase out fossil fuel subsidies . The Russian invasion of Ukraine has led to high energy prices, causing some EU Member States to cut excise taxes on energy products to alleviate the impacts of high energy bills. Some of these cuts can be classified as fossil fuel subsidies . It therefore looks unlikely that significant progress will be made this decade towards phasing out fossil fuel subsidies.

Progress towards phasing out fossil fuel subsidies varies considerably across EU Member States. Between 2015 and 2020, fossil fuel subsidies declined in 15 Member States, with the highest reductions in Sweden and Estonia, where subsidies dropped by 53% and 50%, respectively. In contrast, fossil fuel subsidies increased markedly in Cyprus (262%), Malta (151%) and Slovakia (100%) .

It should be noted that, in terms of absolute value, almost half of all fossil fuel subsidies granted in 2020 were spent in two countries: Germany (EUR 14 billion) and France (EUR 11 billion).

The extent to which fossil fuel subsidies contribute to national economies also varies considerably across Member States. Fossil fuel subsidies represent the highest shares of gross domestic product (GDP) in Cyprus (1.3%) and in Bulgaria, Greece and Belgium (about 0.9% each) .

Additional figure: Fossil fuel subsidies as a share of national gross domestic products, 2020

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