According to the latest analysis by the Organisation for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA), overall government support for fossil fuels across 51 countries worldwide nearly doubled to 697.2 billion US dollars (around 724 billion euros) in 2021, in comparison to 362.4 billion US dollars (376 billion euros) in 2020, as a result of the global economic restart following the COVID-19 pandemic. Indeed, the support for fossil fuels is expected to expand further in 2022 amidst the exacerbating energy crisis in Europe.
OECD’s latest Inventory of Support Measures for Fossil Fuels published in January 2022, paints a picture of regional inconsistency in Central and Eastern Europe (EU’s Eastern Member States and Ukraine) with mixed support for fossil fuels, between 2015 and 2020. Whilst some countries took steps to distance themselves away from fossil fuels and increased the share of renewable energy sources, this did not necessarily translate into a comprehensive decrease in funding for all fossil fuels.
The Baltic leader
Estonia is considered an outlier in the overall global fossil fuel support and a model case for the region. In 2020, renewable energy occupied a bit more than 30 per cent of the country’s energy mix, in comparison to 28.9 per cent in 2015. According to the OECD’s Inventory, the acceleration towards renewable sources had been predicated on increased use of biomass, wind energy and solar photovoltaics (PV).
Furthermore, government support for fossil fuels decreased by 32 per cent, between 2015 and 2020, with a reduction in tax expenditure from 45 million euros in 2019 to 35 million euros in 2020. Interestingly, oil shale’s use, which had traditionally dominated Estonia’s energy supply, significantly decreased in 2020 (dropping to 31.5 per cent from 2019). More generally, the oil shale-based electricity production had undergone major changes with the opening of the new Auvere Power Plant in 2018 and the subsequent closure of older plants.
Leaders in renewables, laggers in fossil fuel phase-out
Poland, the biggest economy in the region, had also seen record growth in renewable energy. However, this was combined with an increase in government support for fossil fuels. The country’s share of renewable energy had gradually been growing since 2012, reaching a record 16.1 per cent in 2020, in comparison to 11.8 per cent in 2015. Looking beyond 2020, Poland was ranked the 4th largest solar PV market in the EU, recording 3.2 gigawatts (GW) of installed capacity in 2021. Despite making major progress in accelerating the use of renewables, the Polish government increased its support for fossil fuels by 33 per cent, between 2015 and 2022. In 2017, tax expenditures and direct transfers rose to 1.79 billion złotych (approximately 371 million euros) and 5.1 billion złotych (approximately 1 billion euros), respectively.
According to the OECD, support for fossil fuels in Poland mainly comes in the form of compensations for the decommissioning of coal mines and for the termination of long-term Power Purchase Agreements (PPAs) that were signed with power plants. As it currently stands, the government plans to close down all of its coal mines by 2049. In addition, the EU’s Just Transition Fund will provide 3.85 billion euros to the regions most negatively affected by the transition to a climate-neutral economy (Silesia, Greater Poland, Lower Silesia, Łódzkie and Lesser Poland voivodeships).
Nonetheless, coal continues – and with the news of Poland increasing the production of thermal coal due to the invasion of Ukraine – to play a major role in the country’s energy landscape. It is also important to note that the Polish Turów open-pit lignite mine and power plant will continue to operate, despite the order to pay a daily penalty of 500,000 euros to the European Commission for not halting operations of the site.
Hungary presents a much different overview of its recent energy developments. According to the Inventory, the Hungarian government committed to a 24 per cent decrease in fossil fuels support (2015-2020). In 2020, the country’s tax expenditures decreased by 34 per cent in comparison to 2019, although, direct transfers rose by 180 per cent in the same period.
Since 2020, Hungary has also undertaken key developments to accelerate its coal phase-out. Among them is the project to decarbonise the Matra power plant, using a mix of renewables, energy storage and natural gas technologies and closing two associated open-cast lignite mines. As per the National Energy and Climate Plan, a complete phase-out of coal is planned by 2030. However, whilst Hungary has made significant progress in its coal phase-out, its reliance on other fossil fuels like natural gas – albeit less harmful – continues to hold a firm position in the country’s energy outlook. In fact, the war in Ukraine has steered the country further towards this direction.
Hungary’s share of renewables in its energy mix had not gone below 12.5 per cent between 2012 and 2020. However, renewable energy sources occupied only 13.8 per cent of the country’s energy mix in 2020, in comparison to 14.4 per cent in 2015. Nonetheless, looking beyond 2020, Hungary has seen a spike in its PV solar sector in the last couple of years – particularly, in the midst of the ongoing energy crisis.
The future of fossil fuels in Europe
As Europe provides new support measures for fossil fuels in response to the now continent-wide energy crisis, it becomes increasingly important to monitor the impact of the ongoing crisis on the EU’s CEE already regionally inconsistent trends in reducing state aid for fossil fuels.
For countries such as Estonia and Hungary, it will be interesting to see the extent to which they are willing to sacrifice the progress made in decreasing fossil fuel support in their energy crisis management strategies. As shown by Ukraine, a short-term security threat can have a drastic impact on a country’s decision to increase its reliance on fossil fuels.
