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Key enabler insights: Chanelling public funds away from fossil fuels

Progress towards channelling public funds away from fossil fuels is going in the wrong direction.

Amid the energy crisis of 2022, fossil fuel subsidies have risen in nearly all Member States. While most plan to phase out these subsidies, the focus is often limited to the power sector and, to a lesser extent, the buildings sector. Germany and France have committed to exit fossil fuel subsidies but have not set a specific end-date for all. Denmark stands out as the only Member State having set out a comprehensive national plan to concretely phase out fossil fuel subsidies related to electricity generation, coal-fired power plants, and support in fossil heating systems.

Climate Finance

Diving deeper: progress towards chanelling public funds away from fossil fuels

EU-wide progress

Progress towards channelling public funds away from fossil fuels was going in the wrong direction in the period assessed. EU fossil fuel subsidies (FFS) have almost tripled between 2021 and 2022 and reached EUR 190 billion. For comparison, subsidies granted to renewable energy amounted to EUR 87 billion in 2022. This growth in fossil fuel subsidies is mainly due to the recent energy crisis, largely generated by the war in Ukraine, which led EU Member States (MS) to adopt more than 230 temporary subsidy measures to protect households and companies from the rise of energy prices. It should be noted that even before the energy crisis, FFS were still very high at the EU level and amounted to EUR 68 billion in 2021 already. Italy, France, the Netherlands, and Germany represented 62% of total EU fossil fuel subsidies in 2022.

Assessed indicators
Finance

Progress in Member States

For the indicators, progress in towards chanelling public funds away from fossil fuels has been assessed and compared in EU Member States. 

Past progress of Member States on fossil fuel subsidies

Policy context and areas of action

Industry
Policy context

The EU’s 8th Environmental Action Programme (2022) urged MS to phaseout fossil fuel subsidies as soon as possible. This objective to end all fossil fuel subsidies by 2025 was reaffirmed by European parliamentarians at COP 28. Following the EU’s 8th Environmental Action Programme, MS are required to report their action plan to phase out fossil fuel subsidies in their National Energy and Climate Plans (NECPs) on an annual basis. According to these reports, many MS plan to move away from fossil fuel subsidies, but only a few have translated these ambitions into laws or clear plans. Denmark is the only MS that translated its objective to phase out FFS into a national plan, while Poland is the only MS that expressed an intention to continue the expansion of fossil fuel extraction.

Areas of action

To enable the redirection of financial flows from fossil assets to climate action and limit global warming to 1.5 °C, it is essential that fossil fuel subsidies are replaced by climate subsidies as soon as possible. The EC could for example impose sanctions on MS that do not publish clear plans for phasing-out fossil fuel subsidies. However, it is important to note that these plans should consider the social consequences of ending these subsidies. These sanctions could be applied first to MS that have not drawn up precise plans for phasing-out fossil fuel subsidies, and subsequently to MS that do not comply with the plans they have set themselves. It is up to the European institutions to specify the procedures and timetable for these sanctions.

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