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Energy subsidy

Energy subsidies are measures that keep prices for customers below market levels, or for suppliers above market levels, or reduce costs for customers and suppliers.[1][2] Energy subsidies may be direct cash transfers to suppliers, customers, or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access.

This article is about financial support by governments for all forms of energy in general. For more specific details about coal, oil and gas, see Fossil fuel subsidies.

During FY 2016–22, most US federal subsidies were for renewable energy producers (primarily biofuels, wind, and solar), low-income households, and energy-efficiency improvements. During FY 2016–22, nearly half (46%) of federal energy subsidies were associated with renewable energy, and 35% were associated with energy end uses. Federal support for renewable energy of all types more than doubled, from $7.4 billion in FY 2016 to $15.6 billion in FY 2022.[3]


The International Renewable Energy Agency tracked some $634 billion in energy-sector subsidies in 2020, and found that around 70% were fossil fuel subsidies. About 20% went to renewable power generation, 6% to biofuels and just over 3% to nuclear.[4]

Security of supply – subsidies are used to ensure adequate domestic supply by supporting indigenous fuel production in order to reduce import dependency, or supporting overseas activities of national energy companies, or to secure the electricity grid.

[8]

Environmental and health improvement – subsidies are used to improve health by reducing , and to fulfill international climate pledges.[9] For example the IEA says the purchase price of heat pumps should be subsidized.[10]

air pollution

Economic benefits – subsidies in the form of reduced prices are used to stimulate particular economic sectors or segments of the population, e.g. alleviating poverty and increasing access to energy in developing countries. With regards to fossil fuel prices in particular, Ian Parry, the lead author of a 2021 IMF report said, “Some countries are reluctant to raise energy prices because they think it will harm the poor. But holding down fossil fuel prices is a highly inefficient way to help the poor, because most of the benefits accrue to wealthier households. It would be better to target resources towards helping poor and vulnerable people directly.”[7]

[6]

Employment and social benefits – subsidies are used to maintain employment, especially in periods of economic transition. In 2021, with regards to fossil fuel prices in particular, Ipek Gençsü, at the Overseas Development Institute, said: “[Subsidy reform] requires support for vulnerable consumers who will be impacted by rising costs, as well for workers in industries which simply have to shut down. It also requires information campaigns, showing how the savings will be redistributed to society in the form of healthcare, education and other social services. Many people oppose subsidy reform because they see it solely as governments taking something away, and not giving back.”[6]

[11]

If governments choose to subsidize one particular source of energy more than another, that choice can impact the environment.[5][6][7] That distinguishing factor informs the below discussion on all energy subsidies of all sources of energy in general.


Main arguments for energy subsidies are:


Main arguments against energy subsidies are:


Types of energy subsidies are below. ("Fossil-fuel subsidies generally take two forms. Production subsidies...[and]...consumption subsidies."[4]):


Overall, energy subsidies require coordination and integrated implementation, especially in light of globalization and increased interconnectedness of energy policies, thus their regulation at the World Trade Organization is often seen as necessary.[16][17]

Fossil fuel subsidies

Corporate welfare

Building-integrated photovoltaics

Government subsidies

Feed-in tariff

Gasoline subsidies

Renewable Energy Certificates

Renewable energy commercialization

Renewable energy payments

Stranded assets

Financial incentives for photovoltaics

Difiglio, Prof. Carmine; Güray, Bora Şekip; Merdan, Ersin (November 2020). . iicec.sabanciuniv.edu (Report). Sabanci University Istanbul International Center for Energy and Climate (IICEC). ISBN 978-605-70031-9-5.

Turkey Energy Outlook

- a collaboration between the Organisation for Economic Co-operation and Development (OECD) and the International Institute for Sustainable Development (IISD)

Fossil Fuel Subsidy Tracker

- a project of the International Institute for Sustainable Development

Global Subsidies Initiative

- OECD

OECD-IEA analysis of fossil fuels and other support

(2017)

European countries spend billions a year on fossil fuel subsidies, survey shows