Energy subsidy

Energy subsidies are measures that keep prices for customers below market levels, or for suppliers above market levels, or reduce costs for customers and suppliers. Energy subsidies may be direct cash transfers to suppliers, customers, or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access. The International Renewable Energy Agency tracked some $634 billion in energy-sector subsidies in 2020, and found that around 70% were fossil fuel subsidies. About 20% went to renewable power generation, 6% to biofuels and just over 3% to nuclear. If governments choose to subsidize one particular source of energy more than another, that choice can impact the environment. That distinguishing factor informs the below discussion on all energy subsidies of all sources of energy in general. Main arguments for energy subsidies are: Security of supply – subsidies are used to ensure adequate domestic supply by supporting indigenous fuel production in order to reduce import dependency, or supporting overseas activities of national energy companies, or to secure the electricity grid. Environmental and health improvement – subsidies are used to improve health by reducing air pollution, and to fulfill international climate pledges. Economic benefits – subsidies in the form of reduced prices are used to stimulate particular economic sectors or segments of the population, e.g. alleviating poverty and increasing access to energy in developing countries. With regards to fossil fuel prices in particular, Ian Parry, the lead author of a 2021 IMF report said, “Some countries are reluctant to raise energy prices because they think it will harm the poor. But holding down fossil fuel prices is a highly inefficient way to help the poor, because most of the benefits accrue to wealthier households. It would be better to target resources towards helping poor and vulnerable people directly.” Employment and social benefits – subsidies are used to maintain employment, especially in periods of economic transition.