Europe Wants To Wind Down Fossil Fuel Subsidies

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The European Union is spending too much subsidizing fossil fuels. This appears to be the opinion of some of the largest industrialists in the bloc.

But it’s not direct subsidies that these industrialists are talking about. It’s the energy aid governments doled out to households and businesses in response to the crisis. And this aid, according to business leaders, needs to change. “There is an urgent need to cut reliance on these carbon-heavy fuels and address inefficiencies in energy use,” the European head of Schneider Electric told the Financial Times recently after acknowledging that financial help was necessary for struggling households.

“Not enough attention is being paid to the five- to eight-year horizon,” said the chairman of Titan Cement, Dimitri Papalexopoulos, told the FT, noting the aid that European governments distributed among households and businesses was not a sustainable solution to the bloc’s energy problem.

Indeed, the European Union has spent more than $700 billion on shielding households and businesses from the worst of the energy crunch since the start of the crisis. Because most of the shielding took the form of subsidizing fuel and electricity bills, and much of that electricity was produced from fossil fuels, so effectively the subsidies could be seen as subsidies for fossil fuels.

The approach drew criticism early on, too, with some observers arguing that all that sort of aid was going to do was stimulate more fossil fuel demand at a time when there were insufficient amounts of those same fossil fuels. The EU responded with a mandate for lower gas consumption.

Now, corporate leaders appear to be calling for a further step in the same direction: reducing demand for fossil fuels.

“We can’t continue to have generalised subsidies for energy,” according to Simone Tagliapietra from Brussels-based energy think tank Bruegel. “All governments should target only vulnerable consumers and incentivise them to go green. That will structurally help Europe to get out of this situation in the long term.”

The nature of such incentives has been under discussion for years, but in reality, it has most commonly taken the form of direct subsidies for renewable power and EVs. It seems that, according to Europe’s industrialists, the bloc’s government should distribute more of these in order to accelerate the transition to low-carbon energy.

The eagerness with which these business leaders are calling for acceleration to net zero might appear to be a little odd. Businesses in the European Union have suffered soaring energy costs because of the crunch along with soaring carbon permit prices, which have affected their competitiveness, according to the business world itself.

Regulations and the emissions trading scheme have forced European businesses to green up, however, even at the expense of lower competitiveness and costlier operations. Perhaps business executives simply want to spread the pain around a bit. Or get some more subsidies to green up further.

The price of carbon dioxide on the EU’s emission-trading market hit 100 euro last month for the first time ever. Transition activists hailed the development since many of them argue that the only way to make businesses decarbonize is to make it too expensive for them to emit carbon dioxide. Businesses might have had a somewhat different reaction to the news. And these calls from the business world to destroy oil and gas demand might well be a continuation of that reaction.

Right now, most of the decarbonization burden created by the EU falls on the shoulders of the business world. Businesses get to pay through the nose for every ton of carbon they emit. Households get subsidies for putting solar panels on the roof or buying an EV. The distribution of that burden, therefore, is nowhere near fair, so it was only to be expected that the business world would start making noise at some point.

In fairness, the EU is discussing more green energy subsidies—as a response to Biden’s Inflation Reduction Act, which came as a huge surprise to European governments. Criticism from EU leaders, most notably France’s president Emmanuel Macron, said the IRA is unfair, it will take business from Europe to the U.S. and might ultimately “fragment the West.”

Yet the IRA spurred Brussels bureaucrats into action, and now the Commission is working no more subsidies for decarbonization as well as a laxer regulatory framework for low-carbon projects—something that the business world has been calling for.

This means, on the face of it, businesses will get what they want—more money being put into decarbonization instead of energy consumption as is. But it appears that, from the EU’s perspective, subsidies are the only way to move the transition forward. No chance is being given to competition and the free market.

That might become a problem as Eastern Europe’s recent experience with centrally planned—and subsidized—economies would show anyone willing to dig into the historical evidence.

Source Oil Price