The global energy crisis pushed fossil fuel consumption subsidies to an all-time high in 2022

Periods of high and volatile fossil fuel prices drive home the unsustainability of today’s energy system and underscore the benefits of energy transitions, but these episodes come with significant economic and social cost. High fossil fuel prices are no substitute for consistent climate policies.

During an energy crisis, government commitments to phasing out subsidies are overshadowed by the priority to protect consumers. The resulting government actions reduce hardship but also weaken incentives for consumers to save or to switch to alternative sources of energy, and use up public funds that could be spent in other areas, including on clean energy transitions.

High fossil fuel prices hit the poor hardest but subsidies are rarely well-targeted, and as a result tend to benefit the better-off. Effective targeting to protect vulnerable groups requires investments in better data collection and in setting up effective cash transfer mechanisms.

But well-designed policies should avoid fuel supply getting too far out of step with demand in the first place. Resources are best deployed to provide lasting protection against volatile fuel prices. This means anchoring market-based prices in a broader suite of policies and measures that enable households and industries to make cleaner energy choices. High-efficiency and low-emissions equipment and services need to be readily available, and poorer consumers need support to manage their upfront costs. It is far better for governments to spend time and money on structural changes that bring down fossil fuel demand, rather than on emergency relief when fuel prices go up.