While pledged to phase out fossil-fuel subsidies by 2025, EU member states are spending more than at any point since 2015.
As the G7 summit takes place this week in Apulia, Italy, world leaders will once again address climate finance and the green transition. Among the key topics on the agenda will be the commitment made in 2016 by G7 members to end ‘inefficient fossil fuel subsidies’ by 2025.
The G7 has a great history of discussing the phase-out of fossil-fuel subsidies, reiterating its initial pledge at the G20 and United Nations climate-change conferences. The strongest renewal came last year at COP28 in Dubai, where, as part of the ‘global stocktake’, all countries committed to ‘phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible’.
Three (until recently four) of the G7 are major member states of the European Union and the EU—which likes to affirm its global climate leadership—is a ‘non-enumerated’ G7 member. Yet when it comes to the EU these repeated commitments are a litany of broken promises.
Moving backwards
Indeed, the EU is not only failing to walk the walk but moving backwards, as evidenced by a new briefing from Climate Action Network Europe. Its budget continues to allow the financing of fossil-fuel infrastructure via key EU funds, while fossil-fuel subsidies in member states’ budgets currently aggregate to more than at any point since 2015.
We witnessed a moderate reduction in 2019-21 in fossil-fuel subsidies but in 2022, following the full-scale Russian invasion of Ukraine, they more than doubled. Although shielding vulnerable households from rampant energy costs was necessary to prevent an increase in energy poverty in the short term, the subsidies were poorly targeted and failed to support transformative investments benefiting energy-poor households—such as in heat-pump installation or renovation. So the EU and its member states continue subsidising the production and consumption of the same fossil-energy sources that triggered the crisis in the first place.
Despite the urgent need to eliminate the EU’s external dependence on fossil gas following the Russian invasion of Ukraine, subsidies for renewable energy across the EU in 2022 totalled €87 billion while fossil sources received €120 billion—or 1.38 billion for every billion allocated to renewables. According to forecasts by the International Monetary Fund for 2023, fossil-fuel subsidies in the EU can be expected to shrink as energy prices decline but they will remain far above 2021 levels over the coming years.
On top of this, governments have yet to define what constitutes an ‘efficient’, as against ‘inefficient’, fossil-fuel subsidy. The distinction between direct and indirect subsidies also remains uncertain. This lack of clarity hampers progress, as all such subsidies effectively hinder the transition to renewable energy by giving fossil fuels a competitive edge. They not only harm the planet but also disproportionately benefit the wealthy—their biggest consumers—failing to support those in need.
Solving the problem
The G7 climate, energy and environment ministers recently called on the International Energy Agency to provide recommendations on how to effect the transition from fossil fuels in energy systems—which did not inspire confidence that they had given much thought to the challenge themselves. The ministers promised domestic plans, policies and actions, reflected in their Nationally Determined Contributions, under the Paris Agreement, and long-term strategies for reaching ‘net zero’. Yet very little of this is evident in EU member states’ national energy and climate plans (NECPs).Instead of subsidising the problem of dependence on fossil fuels, EU funds and national public expenditures should focus on solving it, once and for all.
The way we produce, consume and move around—our whole economy—remains dependent on fossil fuels. Without massive investments in the alternatives, including renewables, circular-economy practices and infrastructure for demand reduction, ending consumption-based fossil-fuel subsidies risks leaving many with a hard transition ahead, escalating the cost-of-living crisis and triggering protests and distrust. As such, the phase-out of subsidies should be implemented in tandem with an immediate, massive scale-up of investments in a just transition, generating accessible and affordable alternatives to these fuels.
The EU should play a leading role in this process. Among other measures, it should ensure there is no support for new fossil-fuel infrastructure via EU funds after 2025—as of now, midstream and downstream gas infrastructure continues to be financed through the major funds available to member states. The EU should also fully align its rules on ‘state aid’ with the commitment to phase out fossil-fuel subsidies by 2025 and ensure that the revised NECPs submitted by member states present a concrete roadmap to this end, on an economy-wide basis, as a precondition for their approval.
Finally, the excessive weight of the fossil-fuel industry on the EU and member states’ decision-making must end. It’s time to end meetings of government and EU officials with representatives of the fossil fuel industry, except where strictly necessary to enable lawmakers and public authorities to regulate it effectively and accelerate the transition to a fossil-free Europe. The EU should champion similar commitments at the international level—starting with the G7.
Olivier Vardakoulias is an economist working for Climate Action Network (CAN) Europe. Previously, he was lead economist at WWF Greece and senior economist at the UK-based New Economics Foundation. He has worked for years on environmentally sustainable economic models.
Giulia Nardi is a climate-and-energy policy officer at Climate Action Network (CAN) Europe, focused on the EU LIFE 'Together for 1.5' project and effective National Energy and Climate Plans (NECPs) in line with the Paris Agreement. She has a masters in sustainable industrial chemistry.