Luxembourg's Climate Policy Observatory (OPC) has called on the government to end energy subsidies on fossil fuels, as they exacerbate climate change and delay the energy transition.
The European Scientific Advisory Board on Climate Change (ESABCC) addressed the issue of fossil fuel subsidies in a letter to the energy and climate ministers of the 27 EU Members States.
In its opinion, the OPC writes that financially weaker consumers should be supported directly, instead of benefiting from a general tax reduction or subsidies. Fossil fuel subsidies slow down the motivation to reduce demand and could even lead to a price spiral, the organisation argues.
"Direct income support is preferred over price-distorting interventions, as it maintains the price signal for energy savings and investments in renewables. Targeted price reductions such as social tariffs or block tariffs could be considered as a second-best solution, as they distort the marginal price signal to only a limited degree," the opinion reads.
The OPC is also in favour of removing fossil fuels from the commodity basket for the index.
"Considering the high likelihood that the energy crisis will extend over several years or become a recurrent event triggered by different circumstances due to the increasing instability of global energy markets and geopolitics, it is expected that energy prices will remain high or increase even further in the coming years."
"These long-term perspectives suggest that direct fossil fuel subsidies are not only harmful in terms of climate change but also unsustainable given the increasing number of competing pressures on public funds," according to the OPC.
Furthermore, the OPC recommends to the government that part of the money it currently invests in energy price caps be used to reduce the need for fossil fuels. This includes, among other things, improving public transport, subsidising so-called district heating networks and setting up collective programs for the energy renovation of houses.
