Fossil Fuel Subsidies in EU Member States – Trends and Analytical Challenges

The EU agreed to phase out fossil fuel subsidies (FFS). Nevertheless, FFS strongly increased in 2022 to address the effects of the energy price spikes reached during the energy crisis. Phasing out FFS is therefore also a critical element analysed as part of the European Semester. This paper provides a detailed picture of recent trends and discusses the methodological challenges in analysing FFS. The majority of FFS in the EU are usually tax-related measures, though in the responses to the energy crisis price-related transfers have been dominant. As the part of FFS in price-related support measures cannot always be identified, the crisis-related FFS in EU Member States are likely to be underestimated. Aggregating Member States projections of those FFS in their budgets indicates that the strong rise in directly targeted FFS amounts in 2022 and to a lesser extent in 2023, in particular to support households, is likely to be temporary. Going forward, still around half of EU Member States have only limited or no known plans to phase-out FFS. There are different and partly complementary approaches to define and measure FFS. All approaches have specific challenges. Further reflection is needed on whether all public support which benefits fossil fuels should be treated the same way, or whether particular attention should be paid to FFS linked to a clear economic advantage provided to fossil fuels over other fuels and energy sources. Also, the definition and scope of FFS related to income support may require further scrutiny. The same holds for ways to improve comparability of tax-related FFS, and a possible combined analysis of FFS and implicit and explicit carbon pricing. Finally, further reflection is needed how to take account of the EU and international qualifying criteria for the phase out of fossil fuel subsidies.