Energy price surge underlines need to accelerate clean energy transitions rather than subsidise fossil fuels

Countries should resist raising government support for fossil fuels in response to the global surge in energy prices and the economic impacts of the COVID-19 pandemic, according to the Organisation for Economic Co-operation and Development (OECD) and International Energy Agency (IEA).

Instead, given the existential threat of climate change and the need for a green recovery, countries should accelerate investment in sustainable energy infrastructure and the creation of green jobs, as well as meeting the UN Sustainable Development Goals, in particular SDG 7, to ensure access to affordable, reliable, sustainable and modern energy for all, they say.

The latest OECD and IEA data shows that overall government support for fossil fuels decreased in 2020, yet this was mostly the mechanical result of declining fuel prices and demand as the COVID-19 pandemic led to a lull in global activity. In today’s climate of rising energy prices, it is expected that consumption subsidies will increase again in 2021, aided by an uptick in economic activity. Indeed, the IEA estimates that consumption subsidies will more than double in 2021 due to higher fuel prices and energy use, coupled with hesitancy on fossil fuel pricing reforms.

‘As economic activity and fuel demand picks up, we must ensure that fossil fuel support continues to fall and COVID-19 recovery spending is focused on measures that are positive for the environment and the climate. Support provided in the face of rising energy prices should be designed in a way that helps the most vulnerable, whilst remaining true to our climate commitments,’ says OECD Secretary-General Mathias Cormann.

‘The world urgently needs a surge in investment in clean energy technologies and infrastructure, and phasing out fossil fuel subsidies is one of the essential conditions to make that happen. Governments should be planning for a cleaner and fairer energy future in which everyone benefits from modern energy services. This means expanding access to clean energy, especially for the most vulnerable populations, not maintaining market distortions that favour polluting fuels,’ adds IEA Executive Director Fatih Birol.