National politicians are turning to fossil-fuel subsidies and price caps
Ministers from the European Union held an emergency meeting this week to discuss how to respond to the price spikes, but failed to agree on a plan. National politicians, however, are turning to subsidies and price caps. Italy is considering spending more than €5bn this year and next to reduce the price of natural gas and power for consumers. France will extend its cap on household-gas prices until the end of next year.
Most people would agree that fossil-fuel subsidies should, in principle, be ditched. But no politician wants to expose voters to pain at home or at the petrol pump. Even before the energy crisis, the politics of subsidies were veering off track. Bloomberg20 countries offered direct subsidies on coal, oil, gas and fossil-fuel-fired power worth more than $3.3trn between 2015 and 2019.
They estimate that explicit subsidies will amount to just under $600bn this year but that implicit subsidies could be ten times that . Even if the value of explicit support remains constant as a share of global output, the boffins reckon that the damage from fossil fuels, especially coal, will worsen, and that the value of implicit subsidies will continue to rise .
If governments were to eliminate both explicit and implicit subsidies by 2025—admittedly, a huge if—then global emissions of carbon dioxide would fall by 36%, and global tax revenues would be higher by 3.8% of world, compared with a scenario with no subsidy reform. Rather than a miserable world in which warming is 3°C above pre-industrial levels, the temperature rise would be kept “well below” 2°C and perhaps even on track towards 1.5°C, as the’s Paris climate accords intend.
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