Tracking and measuring government support to fossil-fuel production and consumption is among the key policy measures to decarbonise economies. Reforming fossil-fuel subsidies can help free substantial fiscal resources that may be redirected to meet other important social objectives, including investments in clean energy sources. Phasing out such subsidy schemes has the potential to improve price signals to accelerate the development of lower carbon alternatives.
Investing time and resources to identify and measure fossil-fuel subsidies and the potential distributional effects of their reform and phase out can help policy makers make better informed decisions when they need to reform subsidies. Analysis can also help identify their impacts to all stakeholders, especially to those segments of the population that may be most negatively affected by the reform.
In order to help governments in the EU’s Eastern Partner (EaP) countries (Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova and Ukraine) develop a better understanding of existing fossil-fuel subsidy schemes and their economic, social and environmental impacts, the OECD conducts regular data collection and analysis of such government support.
In 2018, the OECD prepared an “Inventory of Energy Subsidies in the EU’s Eastern Partnership Countries”. This study was the first comprehensive and consistent record of energy subsidies in the region and was developed with a view of improving transparency and establishing a solid analytical basis that can help build the case for reforms in the EaP countries. Based on the OECD standard methodology, the study provided quantitative estimates of government support channelled to consumers and producers of coal, oil and related petroleum products (particularly in the transport sector), natural gas, and electricity and heat generated on the basis of these fossil fuels. The estimates covered the period 2010-15. Additional data collection and analysis was carried out to cover the period 2016-2020 and was published in the report “Fossil-Fuel Subsidies in the EU’s Eastern Partner Countries: Estimates and Recent Policy Developments” as well as in the Policy Highlights “Fossil-fuel subsidies in the EU’s Eastern Partner countries How governments supported fossil fuels in 2020”.
The data from these analyses are now available in the OECD database on government support to fossil-fuel production and consumption. The inclusion of the EaP countries in this database is an important milestone in achieving transparency. It recognises efforts of the EaP governments to disclose information on government support volumes that go to the energy sector in these countries.
The debate on fossil-fuel subsidies has gained significant momentum over the past ten years. Governments are now better informed and more aware of the potentially negative fiscal, social, environmental and climate-related impacts of such subsidies on the economy. The phase-out of fossil-fuel subsidies together with carbon pricing and fuel taxation can help align price signals with and generate substantial revenues for the transition to a net-zero path of economic development.
The OECD work on fossil-fuel tracking and measurement has been actively supported by the European Union within the “European Union for Environment” (EU4Environment) Programme and the “Greening Economies in the Eastern Neighbourhood” (EaP GREEN) Project. Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, through its International Climate Initiative, has also supported this work.
(OECD, 2022), Policy Highlights “Fossil-fuel Subsidies in the EU’s Eastern Partner Countries – How Governments Supported Fossil Fuels in 2020”, OECD, Paris. https://www.oecd.org/countries/ukraine/Fossil-Fuel-Subsidies-in-the-EU’s-Eastern-Partner-countries.pdf.
OECD (2021), Fossil-Fuel Subsidies in the EU’s Eastern Partner Countries: Estimates and Recent Policy Developments, OECD, Paris. https://www.oecd-ilibrary.org/docserver/38d3a4b5-en.pdf?expires=1650609665&id=id&accname=ocid84004878&checksum=0FB1077147C5DE505C868331A16EBBEE (in English and Russian).
(2018), Inventory of Energy Subsidies in the EU’s Eastern Partnership Countries, OECD, Paris. https://www.oecd-ilibrary.org/docserver/9789264284319-en.pdf?expires=1650617263&id=id&accname=ocid84004878&checksum=074B3957F0D06BD8C6BC1EFC5E1EDF83 (in English and Russian).
OECD (2018), Energy Subsidy Reform in the Republic of Moldova – Energy Affordability, Fiscal and Environmental Impacts, OECD, Paris. https://www.oecd-ilibrary.org/docserver/9789264292833-en.pdf?expires=1650609347&id=id&accname=ocid84004878&checksum=8A2007C051EED746FEAB8E5BA80C4FB0 (in English and Romanian).