EUROPEAN COMMISSION

Brussels, 24.10.2023

COM(2023) 651 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

2023 Report on Energy Subsidies in the EU

Commission report on energy subsidies in the EU

Introduction and main findings

The European Union is firmly committed to reducing its greenhouse gas (GHG) emissions by at least 55% (compared to 1990) by 2030 and to become climate neutral by 2050. Subsidies and other economic and legal incentives will play an essential role in: (i) accelerating the deployment of clean-energy and energy-efficient solutions; and (ii) reducing the use of fossil fuels. Subsidies can have economic, environmental, or social welfare purposes. If they are poorly designed, subsidies can distort competition, act against the energy transition, and reduce the carbon price signal. The EU is actively engaged to phase out fossil fuel subsidies also as part of the EU’s international commitments made in the context of the G20 and in the World Trade Organization 1 . The current report is the fourth annual report monitoring energy subsidies and progress towards phasing out fossil-fuel subsidies, as prescribed by the Regulation on the Governance of the Energy Union and Climate Action 2 .

The energy crisis that started in 2021, and which was aggravated by the Russian aggression to Ukraine in 2022, had significant consequences for energy-related subsidies. These consequences can be seen in: (i) the amount of these subsidies; (ii) the distribution of these subsidies across technologies and beneficiaries; and (iii) the instruments used to provide these subsidies. Russia’s weaponisation of energy supplies and the progressive cuts in Russian gas supplies required a strong EU policy response, including short-term measures to ensure the affordability of energy for vulnerable consumers and industries all over Europe.

The results of this study confirm that energy subsidies followed a gradually increasing trend until 2021, and increased dramatically in 2022. Total energy subsidies in the EU rose from EUR 177 billion in 2015 to EUR 216 billion in 2021, to reach an estimated EUR 390 billion in 2022.

The trend of decline in fossil fuel subsidies continued until 2021, when they were at EUR 56 billion, before increasing rapidly to an estimated EUR 123 billion in 2022 in response to the crisis. Renewable energy subsidies fell in 2021 to EUR 86 billion - the first time since 2015 - and rose only slightly to EUR 87 billion in 2022. This was due to high prices on the wholesale electricity market that reduced the subsidy amounts paid under dynamic support instruments. On the other hand, support to energy-efficiency measures increased from EUR 22 billion in 2021 to EUR 32 billion by 2022. Support to all other forms of energy, including electricity as a carrier and nuclear amounted to EUR 180 billion in 2022.

In 2021-2022, energy subsidies linked to new national measures to protect EU consumers from the high prices accounted for an estimated EUR 195 billion. Across the EU, at least 230 temporary national measures were introduced to address the energy price crisis. Households were the main direct beneficiaries of these support measures (EUR 58 billion), followed by business and industrial consumers (EUR 45 billion) and road transport (EUR 23 billion). Cross-sectoral support was EUR 69 billion.

2022 was the first year that, as part of their integrated national energy and climate progress reports, Member States had to report on the progress they had made towards phasing out energy subsidies, in particular for fossil fuels. In addition, this report includes a new section assessing the environmental impact of fossil-fuel subsidies.

This report relies on data from an external study 3  conducted for the Commission using an internationally accepted methodology. Some 2022 data were not fully available or validated at the time the study was completed (August 2023), so 2022 figures may rely on data gap mitigation techniques 4 . As in previous editions, Member States were given the opportunity to provide feedback on the data used for the study.

1.Energy subsidy trends in the EU

Subsidies in this report are defined following the methodology set forth by the World Trade Organization (WTO) 5 , which was used in the supporting Commission study 6 and the previous editions of this report. This methodology defines subsidies as government measures falling into one of the following four categories: (i) direct transfers of funds; (ii) government (tax) revenue that is otherwise foregone (not collected); (iii) governments providing goods and services or purchasing goods; and (iv) price and income support.

The report also examines various characteristics of subsidies: (i) the goal they seek to promote (production, consumption/demand, infrastructure or energy efficiency); (ii) the fuel type they promote (fossil fuels, renewables, nuclear); (iii) economic sectors receiving the subsidy (the energy sector, transport, industry, agriculture 7 , residential, services, etc.); or (iv) whether they are environmentally harmful or beneficial.

1.1Total energy subsidies in the EU

The total amount of energy subsidies in the EU-27 ( Figure 1 ) is estimated at EUR 390 billion in 2022 (+80% compared to the EUR 216 billion 8 in 2021).

The economic recovery in 2021 put upward pressure on energy prices and consequently on subsidies. Energy subsidies already rose from EUR 200 billion in 2020 to EUR 216 billion in 2021. The estimated 2022 data shows that due to the impact of measures taken by Member States, subsidies increased dramatically to reach EUR 390 billion in 2022. In response to the energy price crisis, at least 230 temporary subsidy measures were created or expanded in Member States across the EU to alleviate the impact of high and volatile prices.

Figure 1: Total energy subsidies in the EU-27 (2015-2022; EUR2022bn)  9 10

Source: Enerdata, Trinomics, 2023. NB: 2022 estimates are represented with hatching

The subsidy support evolved differently across technologies in 2022. Electricity subsidies 11 increased threefold, while overall fossil fuel subsidies doubled in 2022 compared with 2021. Subsidies supporting all energies 12 (e.g. through income support 13 ) were 2.4 times higher in 2022 than in 2021. While renewable energy support remained broadly the same in 2022 as in 2020-2021, support to energy efficiency measures increased by 40% in this period, mainly due to the support for energy renovations provided as part of the Recovery and Resilience Facility (RRF).

Figure 2: Subsidies by main energy source / energy carrier in the EU-27 (EUR2022bn)

Source: Enerdata, Trinomics, 2023. NB: 2022 estimates are represented with hatching

Energy subsidies in 2022 were distributed ( Figure 3 ) primarily through income/price support measures (38%), tax reduction measures (35%) and direct transfers (25%). In 2022 fossil fuels accounted for the largest share of the total subsidies (31%), while renewable energy sources received only 22% of energy subsidies in 2022, down from 40% in 2021.

Figure 3: Subsidy distribution by instrument (2022, %)

Source: Enerdata, Trinomics, 2023

1.2Subsidies by energy source

In 2021, fossil fuel subsidies fell to EUR 56 billion, continuing the steady downward trend observed since 2018 14 ( Figure 4 ). The fall was mainly due to a large decrease (EUR 2 billion) in subsidies to the energy industry 15 . This downward trend has been disrupted in 2022 as a direct consequence of the European response to the energy crisis. Subsidy measures were one of the primary tools to counteract the effects of high energy prices on the cost of living and on the production costs of European industries.

As a result, fossil subsidies are estimated to have more than doubled between 2021 and 2022 (from EUR 56 billion to EUR 123 billion). This increase reflects: (i) the much larger support households now receive (+500%); (ii) increased subsidies for the transport sector and the energy industry (+150% and +280% respectively); and (iii) other cross-sectoral measures (+770% through, for example, lower VAT rates). Direct support to industry and agriculture remained stable or rose only very slightly between 2021 and 2022.

Figure 4: Fossil fuel subsidies in the EU-27 by economic sector (EUR2022bn)

Source: Enerdata, Trinomics, 2023. NB: 2022 estimates are represented with hatching

Most of the fossil fuel subsidies allocated in the EU-27 since 2015 have been intended to support consumers’ energy demand, for example by limiting the costs of energy consumption through lower tax rates on energy products. The share of these energy demand measures grew from 67% in 2015 to 74% by 2021 and estimates suggest that they will have grown to 83% of fossil fuel subsidies in 2022. Fossil fuel subsidies have aimed at supporting electricity production ranged between 20% and 30% since 2015, and are estimated to have dropped to 10% of all fossil fuel subsidies in 2022. Subsidies specifically directed to fossil fuel extraction and supporting infrastructure received EUR 13 billion and EUR 6 billion, respectively; while energy industry restructuring (such as support for closing coal/lignite power plants or mines) represented a small and decreasing share of the total fossil fuel subsidies (3.4% or EUR 1.7 billion) in 2021.

While most of the fossil fuel support went to oil and refined oil products (EUR 56 billion) in 2022 ( Figure 5 ), subsidies aimed at natural gas tripled from 2021 to 2022 and reached EUR 46 billion. Support to coal and lignite remained the same at EUR 8 billion, while all other types of fossil, including peat, received EUR 13 billion.

Figure 5: Fossil subsidies by type of fuel

Source: Enerdata, Trinomics, 2023.

In 2021, subsidies for renewable energy sources decreased for the first time in several years ( Figure 6 ) to EUR 86 billion (-EUR 1.3 billion or -1.5% compared with 2020). This decline was mainly due to the increase in wholesale electricity market prices, which has led to a decrease in payments of support instruments that provide a top-up to market prices. The decline in subsidies for renewable energy came also in spite of the increase in installed and supported RES generation capacity. In 2022, RES subsidies rose only slightly to EUR 87 billion, and were below the level of fossil fuel subsidies for the first time since 2015 16 .

In 2022, the typical instrument for providing subsidies to RES continued to be income/price support (EUR 57 billion, 65% of all RES subsidies) through, for example, measures such as feed-in tariffs and feed-in premiums (FiT/FiP) or RES quotas with tradable certificates. Direct transfers (mainly grants) increased significantly to reach EUR 8 billion in 2021 (EUR 5 billion more than in 2020) and EUR 9 billion in 2022. This increase was largely due to support for RES production and electricity infrastructure included in Member States’ recovery and resilience plans, as well as increased support for boosting renewable energy and energy efficiency in heating and cooling.

Figure 6: Renewable energy subsidies by instrument (2015-2022; EUR2022bn)

Source: Enerdata, Trinomics, 2023. NB: 2022 estimates are represented with hatching

Support for renewable technologies varies significantly across the EU ( Figure 7 ), reflecting national priorities and RES potentials. Across all Member States, solar energy (both solar PV and concentrated solar) received the most subsidies in 2022 (EUR 25 billion), followed by wind and biomass (EUR 15 billion each). Hydropower received the least financial support (EUR 1.5 billion in 2022). Subsidies not targeted at any particular renewable technology were also widely used (EUR 24 billion).

Figure 7: Share of RES subsidies by technology for selected Member State (2021; EUR2022bn)

Source: Enerdata, Trinomics, 2023

Energy-efficiency subsidies ( Figure 8 ) have increased since 2015 and by 2022 had reached EUR 30 billion (EUR 8 billion more than in 2021). Grants were particularly significant as a support instrument, accounting for over 50% of all energy efficiency subsidies in 2022. In 2021-2022, energy efficiency grants expanded in parallel to the implementation of the investments in the Recovery and Resilience Facility, followed by tax expenditures, soft loans and energy efficiency obligations (23%, 20% and 6% of energy efficiency subsidies, respectively).

Figure 8: Support for energy efficiency instruments (2022; EUR2022bn)

Source: Enerdata, Trinomics, 2023

Subsidies for nuclear energy increased from EUR 4.3 billion in 2015 to EUR 7.6 billion in 2021 and then dropped to EUR 4.2 billion in 2022. This sudden decrease was due to: (i) the drop in the volume of capacity market mechanisms (in France, Germany and Italy); (ii) the low availability of the nuclear fleet in France; as well as (iii) the payments associated with the German decision to close three nuclear plants at the end of 2021. In 2022, France (EUR 2.3 billion) and Germany (EUR 1.1 billion) accounted for most of the nuclear subsidies in the EU.

1.3Subsidies by economic purpose

Although the total amount of energy subsidies for the year 2022 has almost doubled compared with 2021, there was a significant difference in the categories that accounted for this growth according to the economic purpose of the subsidy ( Figure 9 ).