EU Energy Crisis Relief Acted as Fossil Fuel Subsidies Worth €18/tonne CO2, EconPol Study Finds

The Quick Take

• EconPol Europe study: EU-27 energy crisis relief packages in 2022-23 acted as de facto fossil fuel subsidies
• Average subsidy equivalent was €18 per tonne CO2 for natural gas and €10 per tonne for oil across EU members
• Government emergency measures designed to help households instead entrenched fossil fuel dependency

A new study by EconPol Europe, published with assistance from the Ifo Institute in Munich, finds that state emergency relief packages enacted during the European energy crisis of 2022 and 2023 — including tax reductions, price brakes, and direct payment schemes — functionally operated as permanent fossil fuel subsidies. The study calculates that across the EU-27, the relief measures were equivalent to a subsidy of approximately €18 per tonne of CO2 for natural gas and €10 per tonne for oil, providing a meaningful financial incentive for continued fossil fuel consumption at precisely the moment when the EU's climate transition pathway required reducing it. Handelsblatt reported the finding with its climate and energy policy implications.

The policy paradox identified by the study has direct implications for European energy and utilities sector investors. Energy companies that supply fossil fuels benefited indirectly from demand protection during the crisis period — the subsidies prevented a demand collapse that would have accelerated the transition away from gas and oil faster than the market could absorb. For European renewable energy developers and utilities like Orsted, RWE, and Iberdrola, the implication is that crisis-era subsidies extended the competitive lifespan of fossil alternatives, potentially deferring the demand inflection point that underpins their long-term revenue models.

The forward signals are European Commission proposals for crisis response frameworks that might replace ad hoc subsidy packages with more climate-consistent alternatives — such as targeted support for low-income households buying heat pumps or renewable alternatives rather than subsidising fossil fuel consumption broadly. The macro variable is the frequency and severity of future European energy price crises, which determines when governments next face the political calculus between climate goals and immediate household relief. Watch EU carbon price (ETS) trajectory as a measure of whether the political appetite for climate-consistent policy is strengthening despite the subsidy precedent this study documents.

Synthesized from 2 sources.