The Organization for Economic Cooperation and Development (OECD) is committed to abandoning energy price subsidy policies, which are unsustainable from a budgetary point of view and unfair from a social point of view, in favor of aid for lower income groups.
In a report published this Wednesday, the OECD calls for an end to policies to contain energy prices, which above all are helping to subsidize fossil fuels, when precisely the great international priority is to reduce their use for climate reasons.
He criticizes price control measures or caps below the market price, because although they are relatively easy to apply, they end up benefiting those who consume the most energy, who are usually those with the most resources.
In addition, they disturb the message that high prices give to consumers that energy must be saved and fossil fuels must be abandoned.
And as if that were not enough, they can seriously disrupt the energy supply chain by discouraging investment in new infrastructure and creating shortage problems.
Subsidies with temporary effect
The report’s authors admit that measures to limit escalation in energy gains may “temporarily” contain inflationary pressures.
But then they warn that they are not allowing demand to adjust to supply constraints, and that can exacerbate shortage problems and actually translate into future inflation.
For the same reason, reductions in energy taxes, which have been used very widely, especially in Europe with VAT (the case of Spain is cited, among others), alter the price signal and reduce tax revenue.
And it is not guaranteed that those tax cuts will translate to the same extent to prices.
According to data compiled from 89 countries involved in the report, the fiscal cost of devices to contain the energy crisis between October 2021 and December 2022 has been estimated at US$246 billion, of which US$169 billion has gone directly to subsidies for fossil fuels.
To realize the magnitude of that figure, the OECD compares the additional public money that has been put in 15 months to subsidize these fuels that cause the greenhouse effect with the €201,000 million they received in all of 2019 or with the €182,000 million of 2020 .
Help vulnerable groups
Instead, the OECD advises governments to selectively aid the most vulnerable groups and to develop alternative modes of transport and energy sources in parallel.
“Although income support continues to have a fiscal cost -he points out-, a better selection of measures may allow a more sustainable political response if prices remain high”.
However, it is a complex measure to put into practice, because it requires databases in which the beneficiaries can be identified.
And that is something that may be missing in countries that do not have a highly developed social system or in which it is difficult to reach the most needy when there is a high level of informality or a lack of institutional capacity.
The so-called “Club of developed countries” emphasizes that in the current geopolitical context, medium-term synergies must be favored between climate policies and energy security policies.
This means, once again, a renunciation of price interventions, replacing them with mechanisms to help vulnerable families in the face of price shocks with savings measures and accelerate the transition to clean energy.
Something that can be done by rewarding improvements in energy efficiency and adapting networks and infrastructures to technologies with zero carbon emissions.