At the COP26 climate summit in Glasgow two years ago, world governments made an agreement to phase out “inefficient” fossil fuel subsidies in order to combat global warming. However, since then, global fossil fuel subsidies have actually increased by $2 trillion, according to the International Monetary Fund (IMF).
In total, governments are currently providing $7 trillion in support to the fossil fuel sector. The IMF attributes the recent subsidy increases to governments seeking to protect consumers from rising energy costs.
Fossil fuel subsidies around the world
EU governments have actually increased their support for fossil fuels since the summit in Glasgow, largely due to energy security concerns following Russia’s invasion of Ukraine. European governments gave $310 billion in fossil fuel subsidies in 2022 and created over 230 temporary subsidy measures. This marks a reversal of the previous trend of decreasing support since 2018.
In the US, various provisions in the tax code continue to provide major deductions to companies drilling new oil wells. These provisions include the intangible drilling costs tax break and the percentage depletion tax break.
US President Joe Biden has proposed the elimination of fossil fuel subsidies in his annual budget. However, his endeavors have failed to gain approval from the US Congress.
The largest subsidizer of fossil fuels in the world is China. According to The Business Standard, China provided $2.2 trillion in fossil fuel subsidies last year. This was over 12% of the nation’s GDP.
China also consistently intervenes to maintain lower consumer power and fuel prices. For instance, when global oil prices exceed $130 a barrel, China provides subsidies to its refiners, enabling them to keep fuel prices affordable.
The challenge of renewable energy storage
The Glasgow COP26 summit was far from the first time when governments made promises surrounding fossil fuel subsidies that they ended up breaking. In 2009, G20 nations promised to eliminate fossil fuel subsidies. However, G20 nations collectively spent $1.4 trillion to support the fossil fuel sector in 2022.
The major issue holding back the transition to renewables is the lack of energy storage. Currently, solar and wind power relies on lithium-ion batteries for storage.
However, lithium-ion batteries can only store energy for a maximum of 4 hours. This short-term storage potential limits their effectiveness.
With that said, exciting innovations could soon make renewable energy storage far more feasible. The National Renewable Energy Laboratory estimates that US renewable energy storage capacity will grow by a factor of 3,000 by 2050. Some of the promising storage technologies include concentrated solar power and flow batteries.
