In the energy market various types of subsidies may be potentially present, including measures related to energy production, demand, energy efficiency, infrastructure and R&D.
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According to the Annex 2 to the European Commission Report of 14 October 2020 (Energy subsidies in the EU, COM(2020) 950 final) there is currently no standard definition of energy subsidies across the EU, leaving the Member States with considerable freedom in reporting practices. Within the said Report of 14 October 2020 energy subsidies "are deemed to exist if there is a financial contribution by a government or any public body within the territory of a Member State".
In principle, energy subsidies can be provided in various forms, such as
- the direct transfer of funds (e.g. grants, loans),
- government revenue foregone (e.g. tax incentives and credits),
- the provision of goods and services,
- payments to funding mechanisms and
- income or price support.
When it comes to numbers, energy subsidies:
- were estimated at EUR159 billion in 2018 in the EU in total;
- have been increasing in the last decade, although the increase has slowed down, growing only by 5% since 2015.
Although in the last decade increase in subsidies was largely driven by support for renewable energy, this grew only by 4% since 2015. Energy efficiency subsidies have increased by 21% since 2015, contributing to investments in moderating energy demand.
According to the said Report of 14 October 2020:
- renewable energy received almost three-quarters of the subsidies in the energy sector;
- three most important renewable technologies (solar, wind and biomass) received 30%, 22% and 16% of the total energy sector subsidies respectively;
- three most important subsidy instruments to promote renewable energy were feed-in tariffs (which account for 70% of total renewable subsidies), feed-in premiums and renewable quotas with tradable certificates.
Besides the energy sector, renewables also play a role in transport, with around 10% of the sector’s subsidies related to biofuels. Energy efficiency received around 9% of the total EU energy subsidies in 2018 in the EU. The biggest recipients of these subsidies were households. Capacity payment mechanisms received around EUR2.2 billion subsidies in 2018, and were stable at an average level around EUR2 billion over the last few years. Households received around 11% of total subsidies in 2018, mainly in the form of energy demand or energy efficiency subsidies and electricity consumption support.
When it comes to the EU Member States, the said Annex notes that:
- only six Member States (Austria, Germany, France, Spain, Latvia and Lithuania) included a timeline to phase out (at least a part of the) existing subsidies;
- four Member States (Croatia, Czechia, Finland and Malta) explicitly stated that they have no plans to phase out subsidies which help energy transition.
It is noteworthy, the draft European Climate Law contains a provision that the Union institutions and all Member States phase out all direct and indirect fossil fuel subsidies by 31 December 2025 at the latest, and mobilise sustainable investment accordingly. The phasing out of these subsidies shall not impact on efforts to combat energy poverty.
Regulatory chronicle
24 October 2023
2023 Report on Energy Subsidies in the EU, COM(2023) 651 final
26 October 2021
14 October 2020
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