Cheap Oil Seen by EU as Good Time to Cut Fossil-Fuel Subsidies

  • EU energy chief Maros Sefcovic speaks in interview in Davos
  • Global climate deal sends signal on cutting pollution

A global collapse in crude oil prices is a window of opportunity for governments to cut subsidies for fossil fuels, the most polluting sources of energy, European Commission vice president Maros Sefcovicsaid.

Oil prices tumbled about 70 percent over the past 18 months as turbulence in global markets added to concern over brimming stockpiles. While crude was heading toward the lowest levels since 2003, almost 200 nations, including the biggest producers of the fuel, agreed in Paris last December to a landmark pact to rein in the greenhouse-gas emissions that are blamed for global warming.

“It’s an opportunity for all the importing countries and for the global community to look at what they can do with phasing out environmentally harmful subsidies,” Sefcovic, who is in charge of the EU energy union, said in an interview on the sidelines of the World Economic Forum in Davos. “I don’t think we will have a better opportunity in the future than we have now.”

The International Energy Agency estimates that annual subsidies on fossil-fuel consumption totaled $493 billion in 2014, even after G-20 nations pledged in 2009 to phase out “inefficient” subsidies. The assistance prolongs the use of polluting coal, oil and gas, whose carbon emissions contribute to global warming, and slow down the development of renewables.

Scrapping subsidies for fossil fuels in 20 nations would cut national carbon-dioxide emissions by an average of 11 percent within five years, according to a study last year by the International Institute for Sustainable Development in Winnipeg, Canada, and the Nordic Council of Ministers in Copenhagen.

10 Countries With Biggest Fossil Fuel Subsidies as Share of GDP

Sliding oil prices over the last 18 months have already prompted unprecedented belt-tightening in Saudi Arabia, the biggest oil producer, including cuts to fuel and energy subsidies. Still, the slump spared renewables such as solar and wind, which raked in a record $329.3 billion of investment globally last year, up 4 percent from 2014.

China remained the biggest market for renewables, increasing investment 17 percent to $110.5 billion. Europe suffered an 18 percent drop to $58.5 billion, recording its weakest year since 2006, in part because of slower activity in Germany after the government cut subsidies and revealed plans for a new auctioning system next year. 

“The renewable industry showed how resilient it is,” Sefcovic said. “We see that the prices and cost of renewables, especially the photovoltaic sector but also wind sector, clearly show that the costs are getting lower, that they can compete with traditional sources of energy. I believe that with all the goals that we set in Paris, renewables will have to play even a more important role in the future.”

The drop in oil prices is unlikely to derail efforts by the 28-nation EU to tighten cooperation between its member states under the energy union strategy, according to Sefcovic. The European Commission, the EU’s regulatory arm, is planning to present next month a proposal to improve the bloc’s security of gas supplies and a strategy on liquefied natural gas.

“The political momentum clearly is there,” Sefcovic said. “Even though we have lower energy prices we know that it happened already several times in history and after that there usually comes volatility. So there’s no place for complacency and we simply have to be better prepared.”

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