Global fossil fuel consumption in 2022 hit record $1tn in blow to energy transition goals

The record subsidies were almost double that of 2021 levels and almost five times compared to 2020, says IEA

Belchatow Power Station, Europe's largest coal-fired power plant, in Poland. Government subsidies for coal tripled to $9 billion from 2021, the International Energy Agency said. Reuters

Fossil fuel consumption subsidies worldwide soared in 2022 to surpass the $1 trillion mark for the first time, dealing a blow to efforts to phase out these "inefficient" sources of energy, the International Energy Agency has said.

The record subsidies last year — totalling nearly $1.1 trillion — were almost double that of 2021 levels and almost five times compared to 2020, preliminary data from the Paris-based IEA showed.

The previous high was at $752 billion, which was set in 2012.

The record level came amid the global energy crisis triggered by Russia’s military offensive in Ukraine that started a year ago and was also a result of a turmoil in energy markets that sent fuel prices in international markets well above what was actually paid by many consumers, it said.

Electricity subsidies had the highest share with $399 billion, which is double its level in 2021, while natural gas surged 145 per cent to $346 billion, the report said.

Oil subsidies grew nearly 84 per cent annually to $343 billion from $187 billion last year, while coal tripled to $9 billion from 2021.

The agency also stressed that this is in "sharp contrast" to the goals set by the Cop26 climate summit in late 2021, which 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," the IEA said.

"And while they may have partially protected customers from skyrocketing costs, they artificially maintained fossil fuels' competitiveness versus low-emissions alternatives."

Periods of high and volatile fossil fuel prices are driving the unsustainability of the world's present energy system and underscore the benefits of energy transitions, the IEA said.

But these episodes come with significant economic and social cost, and high fossil fuel prices are "no substitute for consistent climate policies", it said.

"Phasing out fossil fuel subsidies is a fundamental ingredient of successful clean energy transitions."

Energy transition requires a “practical”, realistic and collaborative approach to ensure that it is just and addresses the triple challenges of climate progress, energy security and economic prosperity, Dr Sultan Al Jaber, the UAE's Climate Change Special Envoy, said in September.

Global carbon emissions hit record highs in 2022, with no sign of the falls needed to curb climate change, a study from the Global Carbon Project had shown.

Carbon pollution from burning fossil fuels rose 1 per cent from 2021 levels and is now slightly above the record levels seen in 2019, it said.

Scientists have said that there is now a 50 per cent chance that global temperature rises will hit the crucial climate target of 1.5°C in less than a decade, the study said.

Oil demand, meanwhile, is projected to grow by 2.3 million bpd in 2023, Opec said this week — higher than a previous estimate of 2.2 million bpd.

The IEA argued that during an energy crisis, government commitments to phasing out subsidies are overshadowed by the priority to protect consumers.

The resulting actions may reduce hardship, but they also weaken incentives for consumers to save or to switch to alternative sources of energy, and use up public funds that could be spent in other areas, including on clean energy transitions.

"High fossil fuel prices hit the poor hardest but subsidies are rarely well-targeted, and as a result tend to benefit the better off," it said.

"Effective targeting to protect vulnerable groups requires investments in better data collection and in setting up effective cash transfer mechanisms."

While the IEA acknowledged that governments indeed took a variety of measures to protect consumers from the worst effects of the energy crisis, the efforts to limit the effect of price volatility were much more widespread.

"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," it said.

"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."