It has been proclaimed that the world is advancing rapidly in energy transition efforts. Climate change has become a challenge to the existence of everyone in every corner of the world, that is, climate change affects lives beyond borders.
And therefore, almost all nations, large or small, privileged or disadvantaged, have set some goals to achieve a premium against short-term perils, such as controlling emissions through promoting renewable energy, switching to organic farming, banning plastics or switching to less intensive emissions. land use, etc.
Despite the pain of accepting alternatives like solar or wind power over conventional fossil fuels, it should be noted that global fossil fuel subsidies nearly doubled to $697.2 billion in 2021, compared to USD 362.4 billion in 2020.
Incentives based on oil and gas production recorded a new level of $64 billion. This is happening despite the IEA’s recommendation of “no new production” in case we want to achieve the aforementioned goals.
The statement above is based on an analysis by the International Energy Agency (IEA) encompassing inputs from 51 countries representing nearly 85% of planet Earth’s total energy supply.
In addition, the International Monetary Fund (IMF) states: “Fossil fuel subsidies amounted to $5.9 trillion or 6.8% of GDP in 2020 and are projected to rise to 7.4% of GDP in 2025, the share of fuel consumption in emerging markets ( where price differentials are generally larger) continues to increase”.
“Only 8% of the 2020 subsidy reflects undercharging of procurement costs (explicit subsidies) and 92% undercharging of environmental costs and foregone consumption taxes (implicit subsidies).
India is not new to providing energy subsidies with gasoline prices eased in 2010 and diesel in 2014.
Even seven of the Maharatna PSUs in India have invested 11 times more in projects dealing with fossil fuels than renewable energy (RE).
And why did it happen?
Are fossil fuel companies losing their assets? Well, most of the subsidies given were intended to cushion the prices paid by consumers.
As economies continue to bear the brunt of countries’ economic (Sri Lanka), ecological and geopolitical (Russia-Ukraine) decisions even after the severe impacts imposed by the Covid 19 pandemic, different nations have preferred this obstacle to action. to protect their citizens from soaring energy prices.
According to the analysis carried out by the IEA: “Fossil fuel subsidies are an obstacle to a more sustainable future, but the difficulty governments face in removing them is underscored at a time of high and volatile fuel prices.”
It doesn’t look so bad. But why was this largely the wrong approach?
Good governance should keep inflation under control in a democracy, which also includes controlling fuel prices.
But this fuel price subsidy may, in another dimension, create a new niche for dirtier fuels, discouraging the adoption of greener fuels due to their higher initial investment required.
“Increased investment in clean energy technologies and infrastructure is the only sustainable solution to the current global energy crisis and the best way to reduce consumer exposure to high fuel costs.”
On the other hand, the production and use of coal can be discouraged through the clean environment tax.
What is more troubling is the fact that subsidies artificially anchoring fossil fuel prices at a low level almost tripled from 2020 to reach $531 billion in 2021.
This can be understood from a profound point of view: a wealthier household consumes more energy. And as a result, this quiet attempt to reduce pressures on the common man’s pocket fails to notice that it only largely benefits well-to-do households.
“Significant increases in fossil fuel subsidies encourage wasteful consumption, without necessarily affecting low-income households. We must adopt measures that protect consumers [and] help us stay on the path to carbon neutrality, as well as energy security and affordability. »
Experts suggest covering the risks, but this will never be done through subsidies. Ultimately they create significant fiscal costs and lead to higher taxes on its contributing citizens, foreign borrowing, send all sorts of wrong price signals to consumers and distort markets, reduce affinity for targeted social spending or promote inefficient disbursement of its resources.
Reforms and solutions ahead:
Comprehensive energy policy, reform and relevant communication is needed with all stakeholders, which addresses the size of subsidies and their impact on the nation’s budget.
There is a need to diversify access to energy and technology to efficiently and sustainably exploit important resources, especially in public enterprises.
Alternative measures to protect the poor can be taken through targeted benefit transfers or simply the focus and scope of existing initiatives can be expanded.
According to research by the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW), there is an urgent need to ensure a just and concerted with the help of an electricity board that can simply transfer subsidies.