The global energy crisis pushed fossil fuel consumption subsidies to an all-time high

Fossil fuel consumption subsidies worldwide soared in 2022, rising above USD 1 trillion for the first time, according to new IEA estimates, as turmoil in energy markets sent fuel prices in international markets well above what was actually paid by many consumers.

Last year’s record subsidies – amid the global energy crisis triggered by Russia’s invasion of Ukraine – were double their 2021 levels, which were already almost five times those seen in 2020.

These escalating outlays were in sharp contrast with the Glasgow Climate Pact, which in November 2021 called on countries to “phase-out … inefficient fossil fuel subsidies, while providing targeted support to the poorest and most vulnerable”. Our analysis shows that many of these government measures were not well targeted, and while they may have partially protected customers from skyrocketing costs, they artificially maintained fossil fuels' competitiveness versus low-emissions alternatives.

For many years, the IEA has monitored subsidies for fossil fuels, evaluating situations in which consumers pay less than the market price of the fuel itself. According to our preliminary estimates for 2022, oil subsidies increased by around 85% while natural gas and electricity consumption subsidies more than doubled. As noted in the World Energy Outlook, high fossil fuel prices were the main reason for upward pressure on global electricity prices, accounting for 90% of the rise in the average costs of electricity generation worldwide (natural gas alone for more than 50%).

Governments took a variety of measures to protect consumers from the worst effects of the energy crisis. The most common, as usual, was simply to fix end-user tariffs, or to cap fuel or electricity price increases. For example, the Peruvian government decided in April 2022 to temporarily include a number of transport fuels in the State Fuel Price Stabilization Fund to curb the rise in prices. Many advanced European economies limited consumer exposure to the full impact of spiralling natural gas prices. Thailand introduced a price cap of THB 30 (USD 0.85) per litre of diesel. Some successful subsidy reform programmes were interrupted: Egypt, for example, extended electricity subsidies, which it had previously planned to phase out by the end of the 2021-2022 fiscal year.

Almost all of the consumption subsidies that we found with our price-gap methodology were in emerging and developing economies. More than half were in fossil-fuel exporting countries.

But measures to limit the effect of price volatility were much more widespread, notably in Europe. Most interventions in advanced economies did not meet our definition of fossil fuel consumption subsidies, because average end-user prices remained above market-based values. But they were nonetheless a significant drain on fiscal resources1. The IEA’s tracking suggests that more than USD 500 billion in extra spending was committed to reduce energy bills in 2022, mainly in advanced economies; this is addition to the fossil fuel consumption subsidies identified elsewhere.

These measures included exemptions from various taxes and levies, compensation mechanisms for different affected groups of consumers, efforts to ease payment terms or to put a moratorium on disconnections for non-payment. Many utilities and other energy companies, as well as energy-intensive industries received additional support to manage higher fuel-related costs, especially for gas and electricity.