EU calls member states to start phasing out energy subsidies for citizens, firms

The European Commission has invited EU member states to start phasing out the huge energy support measures, in an attempt to restore budget rules three years after the coronavirus pandemic erupted. It reiterated that the best solution to the energy crisis is to reduce dependence on imported fossil fuels.

The surge in energy prices in 2021 and 2022 due to the energy crisis, additionally fueled by Russia’s attack on Ukraine, forced the countries of the European Union to implement fiscal policy measures with sizable costs. They helped households and firms to cope with the high costs of electricity and natural gas.

The call to phase out energy support measures is part of the commission’s guidance to member states on the conduct and coordination of fiscal policy for next year. The EU’s executive body has also announced it would deactivate the general escape clause at the end of 2023. It has provided a temporary deviation from the budgetary requirements that normally apply.

The net cost of energy support measures in 2022 amounted to 1.2% of the EU’s GDP

The commission has invited member states to report on their planned energy support measures, including their budgetary impact, and on phaseout plans.

According to the commission’s 2022 autumn forecast, last year’s net cost amounted to 1.2% of the EU’s GDP. The expenditures were projected to decrease to 0.9% of GDP in 2023, which requires phasing out most of the support measures.

In some cases, the phaseout is already taking place, while in other cases member states have extended some existing measures or adopted new ones since the autumn, the commission stressed.

Of note, according to Bruegel’s data, EUR 768 billion has been allocated for subsidies in the EU since September 2021, in the wake of the energy crisis.

EU countries should first phase out the least targeted measures

EU countries should be careful in the termination of support measures and phase out the least targeted ones first.

According to the commission, in 2022 more than 70% of the amount dedicated to energy support corresponded to measures that were not sufficiently targeting the most vulnerable households and firms.

Furthermore, two thirds have distorted the price signal and may have reduced incentives to contain energy consumption and increase energy efficiency, the commission warned.

It reiterated that the best cure for the energy crisis is to reduce dependence on imported fossil fuels, invest in energy efficiency, diversify energy supply and accelerate the development of renewables.

Dombrovskis: Time to strengthen EU’s focus on future growth and debt sustainability

Commissioner for Economy Paolo Gentiloni said that triggering the general escape clause of the Stability and Growth Pact in 2020 was the right thing to do.

But, governments should now pursue prudent fiscal policies, protect public investment and phase out energy support measures, starting with the least targeted ones, he added.

According to Valdis Dombrovskis, the commission’s Executive Vice-President, it is time to strengthen the EU’s focus on future growth and debt sustainability.

The EU should start to phase out the sizable support that people and businesses needed to cope with last year’s energy price surge, starting with the least targeted measures, he stressed.