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EU invests billions in fossil fuels

Irene Banos Ruiz
September 29, 2017

Europe is seen as a global leader on climate action. Yet it continues to bolster the fossil fuel industry with billions of euros worth of subsidies, according to a new report.

Kühltürme Braunkohlekraftwerk Jänschwalde
Image: picture-alliance/R4200

When President Donald Trump announced the US' withdrawal from the Paris Agreement, European leaders were quick to speak up for the climate and stress the strength of their commitments to cut emissions. 

Yet a new report from the Overseas Development Institute (ODI) and Climate Action Network (CAN) shows the European Union is still pumping money into fossil fuel projects both at home and beyond its borders.

From 2014 to 2016, EU financial instruments and public banks subsidized gas and oil production with an average of over €3 billion, or $3.5 billion, per year, the report found. 

Its authors are calling for a complete phase-out of fossil fuel subsidies by 2020.

A two-faced game

According to ODI and CAN, over €2 billion from the EU budget has been allocated to funding gas infrastructure from 2014 to 2020.

The European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) invested over €8 billion in fossil fuel projects from 2014 to 2016, and the European Fund for Strategic Investments - managed by the EIB - spent more than €1 billion on gas infrastructure in 2015 and 2016.

Markus Trilling, finance and subsidies policy coordinator with CAN, says this is completely incompatible with protecting the climate and has to stop. 

"The EU has to set precedents and lead the way, showing that fossil fuel subsidies have no room in the next EU budget," he said.

Short-term thinking

From 2014 to 2016, the EIB, considered the world's largest public lender, financed at least one coal project, two oil projects and 27 gas projects, in 12 EU countries.

Outside the EU, the bank supported six fossil fuel projects in countries including Mongolia and Ukraine - with European public money.

Coal mine in the USA
Short-term development could have fatal consequences, experts warnImage: Imago/All Canada Photos

At the same time, the EBRD invested over €2 billion in coal, oil and gas projects in the EU, the Caucasus, Central Asia and the Middle East.

The banks argue the fossil fuel industry requires such investment to bring economic progress - particularly in developing countries. But Trilling says climate impacts far outweigh these benefits.

"Of course, these investments bring modernization and provide the country with cheaper energy and jobs, but they do not take into account the long-term impact," he told DW. "We have to get to net zero greenhouse gas emissions by 2050 and this requires long-term thinking."

The report's authors argue that European fossil fuel subsidies not only set a poor example to the rest of the world - investing in fossil fuel infrastructure abroad actually creates dependency on carbon-intensive energy in countries that should be embracing climate-friendly development.

Demostration against coal mining in Germany
Civil society movements are fighting the coal industry in GermanyImage: DW/C. Winter

Germany pumps cash into diesel

Between them, 11 EU member states spent over €20 billion a year on tax breaks for the fossil fuel industry. Germany, the United Kingdom and Italy topped the list for size of subsidies to fossil fuels in the transport sector - where most of the subsidies end up.

Diesel in particular has benefitted from European support, including over 40 percent of Germany's transport subsidies. 

Over the last decade, governments have shifted support from petrol to diesel, and from coal to gas, because they are seen as greener alternatives, Shelagh Whitley, head of climate and energy program at ODI and co-author of the report, told DW.

"A lot of subsidies were argued to be a bridge to climate solutions. Now we recognize these are not bridges," Whitley said. "Diesel is a not a solution for the transport sector and we cannot keep producing and using oil and gas to achieve the Paris goals."

E-mobility in focus at Frankfurt car show

Germany is doing one thing right, according to the report's authors. It's a model of transparency compared to most EU countries, which don't reveal the extent of their subsidies to the fossil fuel sector, Matthias Runkel, research associate for transport and agricultural policy with Green Budget Germany, told DW.

Yet the information on subsidies Germany has revealed only adds to the argument that the country must redouble its efforts to reach climate targets. "Transparency is essential, but it is not everything," Runkel said.

Subsidizing change

CAN and ODI are optimistic that EU fossil fuel subsidies can be phased out by 2020. In the meantime they say support for the industry should be focused on helping the communities and workers who depend on the fossil fuel sector adjust to a clean-energy future - something that is already happening in Germany.

ODI says 76 percent of subsidies to Germany's domestic coal mining sector are targeted at transition costs such as recultivating land after the mines have closed, and pensions for miners retiring early. 

Still, the country's transport subsidies remain highly problematic, Whitley. "The question of how will Germany lead this move away from diesel is still open," she said. "But Germany represents a model for other countries, so hopefully it can lead this transition," Whitley said.

A spokesperson told DW the European Commission is optimistic that discussions over fossil fuel subsidies will have a growing EU presence in the coming months.