Global fossil fuel subsidies on the rise despite calls for phase-out

In an effort to combat global warming, world leaders decided to phase out "inefficient" fossil fuel subsidies during the COP26 climate meeting in Glasgow two years ago.

However, since then, as governments all over the world took action to shield citizens from growing energy prices, the International Monetary Fund reports that worldwide fossil fuel subsidies have increased from $2 trillion to $7 trillion.

EU countries will be trying to strengthen the COP26 agreement to phase out the subsidies by pressing for a deadline of 2030 to get it done at this year`s climate summit in Dubai, but it is uncertain how much support the idea would get.

Since Glasgow, some EU countries have stepped boosted their support for fossil fuels, primarily in reaction to worries about energy security in the wake of Russia`s invasion of Ukraine.

Here are a few instances of global subsidies for fossil fuels.

CANADA

According to the IMF, China`s fossil fuel subsidies accounted for 12.5% of the nation`s GDP in 2022, or $2.2 trillion, making it the largest country in the world.

According to the IMF, the majority of the subsidies fall into the "implicit" category, which also includes undervaluing environmental costs and withholding taxes.

Direct funding, favored loan terms, and power purchase guarantees are some of the forms of support provided to coal-fired power plants.

Earlier this month, China also revealed a new program that rewards coal-fired power stations for keeping their capacity ready and available to the grid when needed, a tactic that is also employed by grid operators in the United States to prevent these units from retiring.

According to a 2020 study by Nanjing Audit University experts, China`s coal subsidy policy increased output by 7.6% while essentially lowering coal prices by 4.2%.

China also frequently steps in to maintain low fuel prices and consumer power. To keep fuel prices reasonable, for instance, it provides subsidies to its refiners whenever the price of crude oil surpasses $130 per barrel globally.

The United States

The complexity of the U.S. fossil fuel subsidies lies in the way they are incorporated into the tax law. Only China is expected to surpass them in 2022, according to IMF predictions, with $760 billion.

Producers can deduct most of their expenditures associated with drilling new oil wells because to a tax loophole in the United States known as intangible drilling costs. Eliminating it might yield $13 billion over a ten-year period, according to estimates made by the nonpartisan Joint Committee on Taxation of Congress.

Additionally, it has been estimated that the percentage depletion tax credit, which enables independent producers to recoup development expenses associated with diminishing coal and oil reserves, may bring in roughly $12.9 billion in income over a ten-year period.

The Democratic president, Joe Biden, has suggested eliminating fossil fuel subsidies in his yearly budget, which is mostly a political document used in talks with Congress.

However, with Republicans controlling the House of Representatives and a slim Democratic majority in the Senate, his efforts have been in vain.

Russia

The IMF reports that the world`s greatest producer of oil and its top seaborne diesel exporter, together, spent $420 billion on fossil fuel subsidies in the previous year.

These consist of compensation payments to oil refineries for selling petroleum domestically rather than exporting it at a higher price.

The think-tank ODI claims that policies such as favorable rail prices, direct budgetary transfers for coal exploration, and tax breaks for some coal mines help Russia`s coal industry. INDIA

The IMF estimates that India received $350 billion in fossil fuel subsidies last year. India is one of the world`s top producers of coal, which accounts for the majority of the nation`s electrical output.

According to the International Institute for Sustainable Development, coal subsidies include low-interest loans for coal power plants, reduced haulage rates for long-distance rail, and exemption from customs duties on coal mining equipment.

EU

In response to the energy crisis, European governments increased their subsidies for fossil fuels by more than double, to $310 billion in 2022, according to IMF data.

A European Commission research states that after Russia cut off gas supplies to the region last year, at least 230 temporary subsidy measures were implemented by governments throughout the EU.

This stopped the downward support pattern that has been going since 2018.

With the most certain pledges to coal power and fossil fuel-based building heating, the majority of European countries intend to lessen their need on fossil fuels.
CENTRAL EAST

According to IMF data, the Middle Eastern countries that produce oil and gas, such as Qatar and Saudi Arabia, have some of the biggest fossil fuel subsidies per capita.

Governments in the area have historically maintained artificially low energy prices, partly to divide resource wealth among their citizens.

For example, Qatar offers free electricity to its population.

CANADA

Canada said earlier this year that it would be getting rid with ineffective fossil fuel subsidies.

Environmental organizations attacked the plan for being vague and leaving certain gaps, although oil and gas projects may still be supported if they included plans for emissions reduction technologies like carbon capture.