An independent study found that Spain spent 3 billion Euros on fossil fuel subsidies in 2020

Despite EU member states laying out comprehensive climate action plans to galvanize momentum in phasing out fossil fuels by 2030, analysts have conflictingly documented a 4% growth in fossil fuel subsidies across the EU between 2015 and 2019, displaying firm resolute in preserving significant flows of fossil fuel subsidies (FFS) that threaten to derail climate obligations.

Like many other EU member states, Spain has refrained from openly disclosing fossil fuel subsidies in their National Energy and Climate Action (NECP) plans or in any other relevant inventories, nor have they set any clear objectives to phase out existing fossil fuel subsidies. Moreover, as fossil fuel subsidies can take the form of tax exemptions, tax reductions, budget transfers, and other price controls, accurate estimations of fossil fuel subsidies can be highly cumbersome to obtain by third parties. Consequently, existing estimates from independent studies should be more considered.

Fossil fuel subsidies in Spain are loosely defined in Law 38/1992 under special taxes that define tax exceptions for gas and fuel oil used in electricity production, navigation, and rail transport, and kerosene in air transport. There are also partial tax refunds for the agriculture industry, road, passenger, freight transport, and taxis.

A study by the International Energy Agency found Spain spent 1.087 billion euros on oil products in 2019, of which 50% was used in agriculture and 25% accounted for tax exceptions for kerosene in air transport. A separate study by an independent climate and energy research company, Enerdata, found Spain spent a total of 3 billion euros in fossil fuel subsidies in 2020, concluding that Spain’s fossil fuel subsidy intensity remains considerably lower than that of Germany and France, which spent 14 billion and 11 billion euros in fossil fuel subsidies in 2020, respectively.

Internationally, Spain continues to provide substantial funds to fossil fuel-related projects, funding 2.1 billion euros annually between 2018 and 2020 through the Spanish government’s export credit agency, CESCE. In contrast, CESCE only provided an annual 47 million USD to clean energy projects globally during the same period.

Spain also exhibits one of the lowest environmental or green tax rates (taxes covering pollution, energy, transportation, and the use of natural resources) in the EU, collecting an equivalent of 1.85% of GDP, compared with the EU average of 2.5%. This includes one of the lowest carbon tax rates across the EU, with Spain charging just 15 euros per metric ton of carbon (or carbon equivalent), starkly lower than the 45 euros per metric ton of carbon seen in France. Though not explicitly defined as fossil fuel subsidy, low carbon tax rates can be interpreted as support for fossil fuels, as a lower price boosts the competitiveness of fossil fuels and consequently reduces incentives to opt for and develop renewable fuel sources.

Last year, Prime Minister Pedro Sanchez set a 20-cent per liter of fuel discount to douse spiraling inflation onset by the war in Ukraine. However, fuel prices in Spain are already below average. Although a further depreciation on fuel cost may slightly mitigate the cost-of-living crisis, skeptics see it as a misguided policy tool that would severely lengthen domestic dependence on fossil fuels and jeopardize momentum to roll out 5 million electric vehicles by 2030.

The absence of reporting and monitoring of fossil fuel subsidies, low environmental taxation, substantial tax exemptions, and funding to fossil fuel-related projects abroad clearly display Spain’s continual support for fossil fuel subsidies. And considering the government has yet to publish any definite plans to phase out the subsidies, Spain’s feasibility of meeting its ambitious NECP 2030 plans will be seriously challenged.

This Post was submitted by Climate Scorecard Spain Country Manager Sean Lewis


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