Gas VAT, TUR, thermal bonus, Iberian mechanism or gasoline discount: fossil subsidies in the spotlight at COP28

Reach the peak of fossil fuel consumption in 2025 and from then on begin to “strongly” cut their use, starting with the subsidies that governments give to gas or oil. This position, which the Government defends like a mantra at the COP28 in Dubai, contains very concrete measures, which have served to moderate electricity bills and especially gas bills in the last two years of energy price crisis.. Subsidies are the regulated gas rate (TUR), fuel discounts, the thermal bonus or, “by default”, the VAT reduction on gas and, in a more complicated way to calculate, electricity.. The Government has just one month to decide whether to extend them for next year and also whether to ask Brussels again for a new extension of the Iberian mechanism. If it does not continue, there will be millionaire savings in the public budget but also an obvious social cost for eliminating aid that today buoys many domestic budgets.

According to a study by the Renovables Foundation and the Institute of Applied Ecology, if we take into account the significant disbursements that EU countries have made to help households in the energy crisis, Spain would need to disburse 1.5 billion a year to help them cover only a third of your additional energy costs. If prices returned to their maximum in 2022, the cost would be even higher, 4 billion per year.

For now, last year the Government approved an extraordinary credit of 3,000 million from the General State Budgets to cover the cost of the regulated gas rate, the Last Resort Rate (TUR) by which, whether to households individuals and small businesses or neighborhood communities, maintains a fixed price that is cheaper than the market price, which is only reviewed – up or down – every three months if the variation in the real price is more than 2%.

Directly reflected in the bill is also the thermal bonus, an annual payment for the payment of hot water in the most vulnerable homes that was created in 2018 to accompany the electricity bonus and which increased its endowment last year, with a budget of 75 million .

The neighborhood TUR was an extraordinary measure for the energy crisis that, if there is no decision to the contrary, will expire on December 31, while the Government promised months ago to review the income criteria of large families that receive electricity and thermal bonuses.

Depending on income

Redirect these and other energy aid to the groups that need it most, with a lower level of income. It is the way in which Greenpeaceo or the Renovables Foundation consider that it is the only way to justify their survival, an idea that also spreads in the Government in the face of imminent decisions in this area.. “That they are proportional and take into account income and national distribution. A subsidy for those in the south with 10 or 15 degrees is not the same as those in the north with zero degrees,” says Ismael Morales.. Head of Communication and Climate Policy at the Renovables Foundation. Aid today is “very inefficient, because it goes to all types of income, to people who can afford it and who cannot,” adds the coordinator of Greenpeace's Fossil Fuels campaign, Francisco del Pozo.

Other extraordinary measures are also under review, such as the discount on the liter of gasoline or diesel that started at 20 cents provided by the Government – plus another ten that some companies contributed – per liter of fuel that any driver refueled to go progressively, until the current discount of 10 euro cents only for temporary transport.

In the same way, it remains to be seen if the Government remains uncertain about whether it will extend the VAT reduction on electricity and gas beyond 2023, which went from 21 to 5%.. Although this does not represent a public contribution to cover part of the price of gas, it is aid “by omission”, that is, because the State stops levying taxes on it.

Asked about these two questions a few days ago in an interview on TVE, the president, Pedro Sánchez, did not reveal what the final decision will be, although he pointed out the possibility of modifying some of these instruments, in line with the idea that his third vice president and minister of Ecological Transition, Teresa Ribera, has slipped on other occasions from maintaining subsidies for the most vulnerable sectors, in line with what Greenpeace or the Renovables Foundation defend.

“We are going to speak with the affected sectors, also with the transporters and with the [Congressional] groups because the coalition government has a parliamentary minority and we will try to address the most urgent needs but adapt them to a situation, fortunately, that is not the same as last year. two years,” when skyrocketing energy prices pushed inflation above 10%, Sánchez said.

The Renovables Foundation also demands an end to tax breaks on kerosene and Greenpeace, an end to the regulated butane rate, and other instruments to support households, but also to the fossil fuel industry.

Extension of the Iberian mechanism

More mysterious is the Government's position regarding a possible new extension of the Iberian mechanism, the cap on gas to generate electricity that in the worst of the crisis managed to contain prices, but which also increased the use of natural gas in Spain – to a large extent, because exports to Portugal and France were also much higher than usual – and it meant transferring billions to combined cycle plants, to electricity plants for generating electricity with gas. Although it has not been activated since February, the current extension expires on December 31 and the Government must decide whether to request another. In theory, it has the wind in its favor, with the Commission extending other emergency measures due to the energy crisis – such as the 180 euro cap, which was never activated – and Ribera assured a few weeks ago that she was in favor of extending it “until necessary” or even that she would defend it in the Energy Council as semi-annual president. However, the Ministry has since assured that the decision has not yet been made.

The Iberian exception is another gas subsidy for which the European Commission calculated a cost of 6.3 billion when authorizing state aid for that amount in March 2022.. They were not disbursed by the State -via budgets, such as the thermal bonus, for example- because the Government decided that the compensation to the electricity companies for the difference between the cap of 40 euros Mwh and the real price would be paid by consumers in depending on your consumption, through the famous compensation.

Payment for emitting CO2

In addition to subsidies like these, which households notice directly, there are many other types, indirect, with which the Government dedicates public funds to help industries pay the energy bill, sometimes contrary to their international obligations to emit less gases. greenhouse effect.

This is the case of the compensations that it approves every year to pay for the surplus emissions that the EU emissions trading market allows for each sector and company, with the intention that these companies do not relocate to countries that do not have these requirements. Just a few weeks ago, the Ministry of Industry announced that it will distribute 229 million among 185 industries, especially in Asturias, the Basque Country and Andalusia.

Cheaper to invest in efficiency

Returning to these 1,500 million that the Government would need to disburse in energy aid each year or the 4,000 in the most extreme case, the report also shows how these same amounts would spread much more if they were used to help households pay their bills and be more efficient and installing heat pumps instead of gas boilers or aerothermal energy instead of heating.

He proposes making “more intelligent use” of the Budget” and calculates that, if the same 4,000 million were taken, he would only need 470 million a year to compensate the most vulnerable households for the increase in energy bills and could allocate another 150 year year to invest in renewables and be more efficient.

At the same time, it would eliminate another obstacle that environmentalists see in supporting fossil fuels, in addition to the direct damage in terms of emissions.. “They discourage investment in efficiency and renewable energy,” “they constrain change,” says Del Pozo, about many of the measures that Moreno defines as “a temporary relief” for families and businesses but that should now be rethought, in most cases. cases based on income.