European governments are continuing to hand out more than €112bn a year in fossil fuel subsidies, despite having signed up to a commitment to phase out harmful subsidies by 2020.
That is the conclusion of a major new report from the Overseas Development Institute(ODI) and Climate Action Network (CAN) Europe, which analysed subsidies enjoyed by oil, gas and coal across 11 European countries and the EU between 2014 and 2016.
There is considerable debate over what constitutes a subsidy and the circumstances under which subsidies can be defined as “harmful”. For example, some governments reject the accusation that tax breaks for fossil fuel companies constitute a subsidy. Similarly, today’s report acknowledged that around half the fossil fuel subsidies distributed by European governments are targeted at low income households.
Some governments, including the UK, also argue that support for gas is helping to curb emissions by accelerating the phase out of coal from the grid.
However, the ODI and CAN report maintains that the huge scale of fossil fuel subsidies is hampering the transition to genuinely low carbon technologies.
The report analysed subsidies from the EU and the governments of the Czech Republic, France, Germany, Greece, Hungary, Italy, Netherlands, Poland, Spain, Sweden and the UK.
It found the transport sector was the largest beneficiary, receiving more than €49bn of support each year, including tax breaks that reduce the price of diesel and effectively discourages the switch to cleaner vehicles.
“The air pollution crisis in cities across Europe and the recent diesel emissions testing scandal have rightly led to increased pressure for governments to act, yet our analysis shows European countries are providing enormous fossil fuel subsidies to the transport sector,” said lead author Shelagh Whitley, head of climate and energy at ODI, in a statement.
Beyond transport, the report claims industry and business receives more than €15bn a year in fossil fuel subsidies, while oil and gas majors also continue to enjoy support for fossil fuel exploration. For example, the UK and France provided €253 million a year in public finance between 2014 and 2016 to support exploration.
Wendel Trio, director of CAN Europe, said the EU was also guilty of funnelling billions of Euros a year to the fossil fuel industry, despite being committed to curbing greenhouse gas emissions.
“The €4bn spent by the EU on fossil fuels, most of which goes to gas infrastructure, locks Europe into fossil fuel dependency for the decades to come,” he said. “This violates the Paris Agreement’s requirement to make finances work for the climate. In addition, the fact that over €2bn a year is provided by EU Member States to support coal-fired power, the dirtiest of all fossil fuels, is unacceptable.”
Economists have long argued that phasing out fossil fuel subsidies is one of the most cost effective ways of cutting carbon emissions – an argument broadly accepted by the G7 and G20, which have both pledged to phase out harmful subsidies.
The report recommends European governments should move swiftly to curb subsidies, introduce a new mechanism for publicly disclosing fossil fuel subsidies, and take steps to ensure subsidies to support the low carbon transition, such as capacity mechanisms, do not provide support for fossil fuels.
It also argues any remaining subsidies should be focused on supporting workers and communities as they move away from fossil fuels.