EU countries must do more to phase out fossil fuel subsidies by 2030 and redirect financial support toward energy transition efforts, according to a European Commission report published on Jan. 29.
In its 2024 Report on Energy Subsidies in the EU, required under the bloc's governance regulation, the Commission indicated a "relatively high" share of fossil fuel subsidies prevailed across the EU, underscoring a need for greater transparency.
"In response to the relatively high share of fossil fuel subsidies, it highlights the need to level the playing field between technologies and incentivize clean technology uptake instead of supporting [fossil fuel] technology lock-in," the EC said.
Total energy subsidies in the EU increased from Eur213 billion ($221 billion) in 2021 to Eur397 billion in 2022, decreasing by 10% to reach Eur354 billion in 2023 -- equivalent to around 2.10% of gross domestic product, according to EC data.
The report comes as the EU looks to completely phase out fossil fuel subsidies by 2030. However, the analysis showed despite subsidies remaining largely stable until 2021, they increased "dramatically" in 2022.
This was largely due to the energy crisis and subsequent reduction in Russian gas supplies, prompting "an urgent need for crisis measures," according to the EC.
In 2022, crisis-related subsidies amounted to Eur187 billion, while across the EU some 270 initiatives were introduced to support households, industry, and transport sectors.
This came at a time when wholesale energy prices surged, with Platts, part of S&P Global Commodity Insights, assessing the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26, 2022.
Prices remain relatively high, with Platts assessing the month-ahead price at Eur48.295/MWh on Jan. 28.
In 2023, crisis-related subsidies fell to a total of Eur145 billion, and are projected to drop to Eur78 billion in 2024 against the expiration of the temporary measures.
Fossil fuel subsidies accounted for 34% of total energy subsidies in 2023, while renewable energy sources subsidies accounted for 17%, with the latter down from 40% in 2021, and 22% in 2022, EC data showed.
Despite the decline, direct payments to RES producers almost doubled to Eur9 billion in 2023, reflecting increased support for renewable energy production and infrastructure.
Overall, renewables subsidies had decreased in 2023, down 10% year on year to Eur61 billion in 2023. This was down from Eur89 billion in 2020. Higher energy prices prompted an automatic decline in payments under RES support instruments that provide a top-up to market prices, the EC said.
Policy recommendations
The report indicated that despite the EU's domestic gas saving measures from 2022-24, subsidies for imported fossil energy continued to place a "heavy burden" on European economies and distort incentives for energy use in often environmentally harmful ways.
Reducing, reforming or eliminating fossil fuel support was a priority for the new Commission as it seeks to develop a road map to scale down and phase out subsidies, led by Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth, and Dan Jorgensen, Commissioner for Energy and Housing.
"The energy transition will only succeed if low-carbon and renewable technologies and energy efficiency are rapidly scaled up; therefore, it is essential to increasingly redirect support away from environmentally harmful fossil fuel subsidies," the report stated.
In its assessment of the draft National Energy and Climate Plans, the EC called for a "collective effort" by all member states to explain how they plan to phase out fossil fuel subsidies.
Member states would need to set out clear and credible timelines to implement the phase out, while adopting measures needed to protect vulnerable households and safeguard competitiveness, the EC said.
