INF/TE/FFSR/W/1  
 
7 July 2023  
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FOSSIL FUEL SUBSIDY REFORM  (FFSR ) 
TEMPORARY SUPPORT MEASURES AND PHASE -OUT BEST PRACTICES  
Note by the Secretariat1 
 
 
_______________  
 
 
Contents  
1   INTRODUCTION  ................................ ................................ ................................ ..........  2 
2   TEMPORARY SUPPORT  MEASURES INTRODUCED IN RESPONSE TO ENERGY CRISES  ... 3 
2.1   Lessons from previous energy shocks  ................................ ................................ ...........  3 
2.2   Types of support measures  ................................ ................................ .........................  4 
2.3   Fiscal impacts of recent emergency support measures  ................................ ....................  6 
3   LESSONS LEARNED FOR DESIGNING TEMPORARY SUPPORT MEASURES  .....................  7 
3.1   General considerations  ................................ ................................ ...............................  7 
3.2   Moving away from price support measures  ................................ ................................ .... 8 
3.3   Focusing on targeted and income -based support  ................................ ............................  9 
3.4   Embedding time -limits, reviews, and sunset clauses  ................................ ......................  10 
3.5   Encouraging energy efficiency  ................................ ................................ ....................  10 
3.6   Accelerating the green transition  ................................ ................................ ................  11 
3.7   Phase -out considerations  ................................ ................................ ...........................  11 
3.8   Fostering international cooperation  ................................ ................................ .............  11 
 
 
  
 
1 This factual note  has been prepared by the Secretariat at the request of the  FFSR initiative.  It does not 
represent the official position of the WTO  or of the WTO Secretariat . INF/TE/FFSR/W/1  
 
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  1  INTRODUCTION  
1.1.  The purpose of the present background paper is to review  the available literature on temporary 
fossil fuel support measures adopted in the context of the current energy crisis . The note further 
maps key considerations outlined in economic and policy literature on the optimal design of and the 
rolling back of su ch measures. In doing so, the note intends to provide background and facilitate 
discussions under the WTO F ossil Fuel Subsidy Reform (FFSR)  initiative on possible best practices 
on designing and phasing out temporary support measures to avoid them becoming  embedded over 
time. 
1.2.  In 1973, massive oil price spikes set in motion a process of fuel substitution and electricity 
generation moved away from oil and towards coal and nuclear. At the same time, industries 
developed more energy -efficient technologies and i mproved conservation. These efforts were 
supported by government policies reducing oil usage and increasing energy awareness , accompanied 
by a move towards more fuel -efficient vehicles in transport. It was a period of high prices and 
inflation but also a p eriod for energy innovation and investment in renewables. For some countries, 
the history of fossil fuel subsidi zation often goes back to the 1970s oil crisis. While governments 
hoped that the fuel -price regimes would be gradually liberali zed, many of the se measures have 
remained in place.2 
1.3.  More recently, in 2021, i nternational fossil fuel prices increased sharply as global demand 
recovered from the COVID -19 pandemic and soared further after the war in  Ukraine in February 
2022.  The run -up in prices has bee n large from a historical perspective, particularly for natural gas, 
which saw a five -fold increase in prices between early 2021 and mid -2022.3 It also triggered a major 
reversal of the previous declining trend in fossil fuel subsidies.  
Figure 1: International Oil and Gas Prices (Index 2016=100; January 2000 –March 2022)  
 
Source:  IMF 2022 . 
1.4.  The real income reduction  from higher energy prices has been  more pronounced for po orer 
households  since t he share of energy in the consumption basket is lower , on average, for  higher 
income households. While the  composition of the energy basket differs by product and across 
 
2 World Bank Live 2022, Energy Price Shocks: Lessons from the Past and Way Forward . 
3 IMF 2022, Surging Energy Prices in Europe . 
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  region s, a sharp increase in prices can impact low -income house holds because of second -round  price 
effects and a more limited ability to cope with shocks.4 
1.5.  This large price shock has reduced the real income of fuel -importing economies and led to a 
sharp increase in inflation. Governments have responded with a broad r ange of temporary relief 
measures to ease the burden of higher energy costs on households and firms. With growing  fiscal 
burden of support , the designing of support policies in a cost -effective manner and the timely phase  
out of temporary measures has been  a key challenge for policymakers.5 
2  TEMPORARY SUPPORT  MEASURES INTRODUCED IN RESPONSE TO ENERGY CRIS ES 
2.1  Lessons from previous energy shocks  
2.1.  The current energy crisis is not the first one in history. Lessons on phasing out temporary 
support measures can be drawn from previous energy price shocks, like the 1973 oil crisis. During 
that crisis, measures were implemented to address the underlying demand and supply imbalance. 
Demand -side measures included fiscal incentives to improve energy efficiency in vehic les and 
housing. There was a shift of balance in the automotive industry toward the more fuel -efficient 
models designed in East Asia and Europe. The quest for better fuel economy, lower fuel bills and so -
called energy independence brought diesel and the et hanol revolution in Brazil, and the start of 
hybrids and electric vehicles. It also brought a wave of technology innovations that continue to 
deliver increased efficiency, including turbocharging, lightweight materials, front -wheel drive, eight -
speed trans missions, and direct fuel injection.6 
2.2.  While present -day policy responses have tended to focus on adjustments to fuel subsidies and 
taxes to mitigate the effects on consumer prices, policy responses to previous oil price shocks were 
focused on  energy secur ity and energy efficiency, including by  establishing institutions, such as the 
International Energy Agency in 1974  which safeguard s oil supplies and promote s common policy 
making. Key policy decisions included the requirement to create national oil reserve s equal to 
60 days of imports (later expanded to 90 days) and a ban on building new oil -powered electricity 
plants with a directive to switch to coal enacted in 1977.7 Furthermore, impetus currently is equally 
placed switching away from fossil fuel source s of energy.  
2.3.  Supply -side measures included a mandate to sharply increase the use of biofuels; establishing 
renewable fuel standards; providing energy -related tax incentives for fossil fuels, nuclear, and 
renewable energy sources; and providing loan guarant ees for zero -carbon technologies.8 Measures 
to promote energy efficiency and changes in consumer preferences have proven to be instrumental 
in significantly reducing oil demand after the 1970s oil shocks. Government programmes in many 
countries invested f unds in alternative sources of energy, such as solar, wind, and geothermal. For 
instance, Denmark became a pioneer in developing commercial wind power during the 1970s. To 
encourage investment, families were offered a tax exemption for generating their own  electricity 
locally with most purchasing shares in cooperative -owned community wind turbines.9 
2.4.  On the other hand, policies that encouraged the use of coal for electricity generation and price 
controls led to environmental problems and market distortions,  respectively. For example, the 
Washington Times reported on the effects of measures taken to lower fuel prices and ration fuel as  
the artificially depressed fuel prices and the rationing programme imposed in the US during the oil 
crisis of 1973 – which st ayed in place in various iterations through 1980 – and brought about lines 
at gas stations and an artificial shortage of gas. Consumers sat in lines while gas stations had to 
stay open a few hours a day only to empty out their tanks.10  
 
4 IMF 2022, Fiscal Policy for  Mitigating Social Impact of High Energy and Food Prices . 
5 IMF 2022, Surging Energy Prices in Europe . 
6 Resilience, From Oil Crisis to Energy Revolution . 
7 World Bank 2022, Global Economic Prospects .  
8 World Bank 20 22, Global Economic Prospects .  
9 Resilience 2019, From Oil Crisis to Energy Revolution . 
10 Washington Times 2006, How gas price controls sparked '70s shortages . INF/TE/FFSR/W/1  
 
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  2.2  Types of support me asures  
2.5.  Several international organizations, including the IMF and the OECD, have done work on 
classifying temporary support measures in response to energy crises, including those adopted in the 
period 2021 -2022. Generally, they highlight a key distinction  between income support  
measures  – i.e. transfers to households and businesses – and price support measures , which 
seek to reduce energy prices paid by consumers. Income support can be delivered through a range 
of means, including transfers or vouchers to households and firms.  
2.6.  A 2022 OECD analysis across 89 jurisdictions shows that  "[g]overnments ' responses to the 
energy crisis have focused largely on price control – which tends to support rather than 
curb demand ".11 The OECD found that support measures account  for 34% of the total value of 
support provided through policies covered by the database. Most of these, 73%, have been targeted. 
By contrast, price support – 66% of the amount of total support provided – is in large part 
non-targeted (94%) . Initially  in 2021 , governments rolled out mainly price support measures . Some 
governments  then gradually shifted to income support measures.  The war in Ukraine provoked 
further increases in energy prices, which caused governments to again turn to price -based polices, 
reversing the trend of a rising share of income -based policies. More than two thirds of the countries 
analysed by the OECD have combined price and income support policies.  These patterns generally 
hold in both OECD and non -OECD countries cove red by the analysis , although non -OECD countries 
tend to rely more on price support measures.12  
2.7.  A March 2022  IMF survey of 31 advanced economies and 103 emerging and developing 
economies confirms that "[m]ost countries surveyed announced at least one meas ure since 
the beginning of [2022]  (26 out of 31 advanced economies and 45 out of 103 emerging 
and developing economies) ".13 In advanced economies, cash and semi -cash transfers (including 
vouchers and  utility bill discounts) were announced by the greatest n umber of countries (in about 
half of all countries), while  most other measures aimed at lowering prices including reductions in 
value -added tax (VAT) and excise taxes (Figure 2). A cap on fuel  prices was announced in Slovenia, 
and France provided subsidies  to distributors to reduce gasoline prices.  Estonia, Luxembourg, and 
the Slovak Republic announced measures to reduce electricity prices. In emerging  and developing 
economies, the most frequently announced measures were reductions in VAT and excises . This 
include d Poland and Turkey, which each announced a reduction  in VAT rates on energy, and 
Côte d'Ivoire, Serbia, and Thailand, which each announced a  temporary reduction or exemption of 
excise taxes. Some emerging and developing economies implemented  a temporary reduction or 
suspension of import duties (for example, Brazil, Iraq, Turkey). Finally, about 55 % of all announced 
measures intended to mitigate the impact of higher energy prices.14  
  
 
11 OECD 2022, Policy responses to rising energy prices . 
12 OECD 2022, Policy responses to rising energy prices . 
13 IMF 2022, Fiscal Policy for Mitigating Social Impact of High Energy and Food Prices . 
14 IMF 2022, Fiscal Policy for Mitigating Social Impact of High Energy and Food Prices . INF/TE/FFSR/W/1  
 
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  Figure 2: 2022 Measures in Response to High Energy Prices  
 
 
Source:  IMF 2022 . 
2.8.  Another 2022 IMF paper reports that European countries  "have im plemented a wide 
range of support measures aiming to cushion the effects of higher energy prices ".15 Most 
measures have been announced as temporary, though in some cases they have been extended 
and/or expanded over time. While some measures preserve the price signal, most are in the form 
of tax or fee reductions or outright natural gas and electricity pr ice controls . The estimated fiscal 
cost of the measures varies considerably across European countries. Emerging market economies 
have typically spent more than advanced ones  while t argeted transfers to households account for a 
small fraction of the overall  fiscal costs in most countries.16 
Figure 3: Policy Adoption by Type ( % of countries adopting each type of measure)  
 
Source:  IMF 2022 . 
2.9.  Similarly,  the UNDP points out that  "[i]ncreasing energy prices have become a 
considerabl e challenge to many developing countries globally : on one hand to manage the 
fiscal and balance of payments repercussions and on the other hand manage the implications on the 
poor and vulnerable."17 Responding mainly to the latt er concern , many developing countries have 
 
15 IMF 2022, Surging Energy Prices in Europe . 
16 IMF 2022, Surging Energy Prices in Europe . 
17 UNDP 2022, Energy Pricing for Developing Countries: High -Level Policy Recommendations . 
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  implemented energy subsidies  and in most instances blanket subsidies . The UNDP cautions that such 
policies have "aggravated fiscal and balance of payment imbalances accentuating fragility of 
countries" and have also "served to distance clima te goals and energy transition plans".18 
2.3  Fiscal impacts of recent emergency support measures  
2.10.  OECD d ata show s that the aggregate fiscal cost of measures provided since October 2021 and 
ending in December 2022 – i.e. summing the fiscal cost of measures for which an estimate is 
available – amounts to a total of USD 246 billion of which USD 169 billion has come in t he form of 
support for fossil fuels.19 
Figure 4: Cost of government responses to the energy crisis, October 2021 to 
December  2022 (USD billions)  
 
Source:  OECD 2022 .  
2.11.  The IMF reports that, on average, the pass-through  for main fuel products (diesel) has been 
the highest in advanced economies and the lowest in emerging and developing economies. The lower 
pass-through in emerging and developing eco nomies is explained by the prevalence of price 
subsidies, especially in the Middle East, North Africa, and sub -Saharan Africa. Even advanced 
economies with liberalized prices however have limited the increase in retail prices. The IMF points 
out that " [t]he lower pass -through implies that the current crisis of rising energy prices 
will have adverse fiscal implications  in all regions with the largest impact expected in the Middle 
East, North Africa, and sub -Saharan Africa. The limited pass -through will put e ven more pressure 
on low -income economies with limited fiscal space."20 
2.12.  The IMF also highlights that, in some European countries , the fiscal costs of measures 
introduced in response to energy price increases since the summer of 2021 are estimated to exceed  
1.5% of GDP by end -2022, excluding loan guarantees for companies for which the cost is difficult to 
estimate ex ante. Most of these costs stem from price controls and subsidies; the annual cost of 
targeted measures implemented so far, including cash transfers and vouchers, is estimated to be 
less than 0.5 % of GDP in most countries.21 
 
18 UNDP 2022, Energy Pricing for Developing Countries: High -Level Policy Recommendations . 
19 OECD 2022, Policy responses to rising energy prices . 
20 IMF 2022, Fiscal Policy for Miti gating Social Impact of High Energy and Food Prices . 
21 IMF 2022, Surging Energy Prices in Europe . The survey does not quantify fiscal costs for several 
countries and for a few other countries complete estimates of the costs were not available; moreover, the cost 
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  2.13.  The UNDP highlights that "[r]ising energy prices have had a cascading effect on the entire 
supply chains leading to high inflationary environment globally" but especially  in developing 
countries . This has been met by policy responses to deflate economies, which have seen increases 
in global interest rates that "in turn has compounded economic woes in many developing countries 
already reeling under high energy prices".22 Indeed, many countries in Asia Pacific, South America 
and in Africa are currently undergoing economic crisis while several others remain on the fringe. 
According to UNDP, these economic woes are partly attributed to policy of heavy and untargeted 
subsidi zation that causes significant fiscal and external strain, constraining governments ability to 
protect the most vulnerable and fight climate change. The UNDP concludes that "[e]ven among 
stronger economies, increased subsidies are becoming a major fiscal and e xternal burden – with 
significant opportunity cost: money that could be used for strengthening social protection, provide 
impactful economic stimulus and countering climate change."23  
3  LESSONS LEARNED FOR DESIGNING TEMPORARY SUPPORT MEASURES  
3.1.  The following section outlines mechanisms developed by governments, and suggestions from 
international fora and academia in designing temporary support measures as well as on effective 
approaches for rolling back on such measures, so they do not become embedde d. The section should 
be seen as a broad and non -exhaustive inventory of considerations to serve as a basis for 
discussions.  
3.1  General considerations  
• Governments' responses to recent rises in energy commodity prices have varied based on 
their energy mix and end-users' vulnerability to price shocks. Measures involve several 
delivery channels:  
o Energy prices : wholesale/retail price ceilings or caps, price freezes, limits on pass -
through.  
o Energy bills : bill discounts, bill deferrals, instalments, moratorium on ut ility 
disconnections for non -payment.  
o Taxes : VAT, fuel, excise, or carbon tax reductions for electricity or fuels, full tax 
holidays or exemptions, corporate tax deferrals.  
o Social protection : cash transfers to households, expanded benefit schemes.  
o Support to sector companies : fiscal transfers to oil and gas companies, utilities 
(electricity and gas suppliers), interest -free loans, guarantees, relaxed state -aid 
rules for firms.  
o Support for energy consuming enterprises : fiscal transfers to firms, such as 
transport operators, farmers, textiles, fertilizer, cement; debt relief, restructuring.24 
 
• Approaches to delivering support differ in their administrative ease, effectiveness and 
alignment with other policy objectives. Government support needs to strike a bala nce 
between multiple objectives, including effectiveness, budgetary and implementation costs, 
the need to focus on the strongest needs, and to ensure synergies with longer -term climate 
change and energy security objectives.25 
 
• In general terms, levers to d esign fiscally sustainable response measures  include: (i) 
affordability (the extent to which the instrument impacts fiscal stability); (ii) predictability 
and control of cost (the ability to set upper limits for the cost of a program and reasonably 
predict  costs); (iii) targeting (limiting benefits to specific businesses, population groups, or 
activities); (iv) abuse resistance (the ease with which abuse by eligible beneficiaries and 
other parties involved with the measure can be controlled); and (v) revers ibility (the ease 
with which the response can be withdrawn when appropriate, without causing economic and 
behavioural distortions).26 
 
 
of loan guarantees is exclude d. Thus, the estimates represent lower bounds of the costs of support measures 
across countries.  
22 UNDP 2022, Energy Pricing for Developing Countries: High -Level Policy Recommendations . 
23 UNDP 2022, Energy Pricing for Developing Countries: High -Level Policy Recommendations . 
24 World Bank 2022, Amid energy price shocks, five lessons to remember on energy subsidies .  
25 OECD 2022, Why governments should target support amidst high energy prices . 
26 World Bank 2022, Fiscal Implications of the Deteriorating Global Economic Environment for Emerging  
Market and Developing Economies . INF/TE/FFSR/W/1  
 
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  • Policy responses must be based on an assessment of fiscal and welfare trade -offs.27 
The appropriate policy response must be taken in light of country -specific circumstances, 
but some general considerations apply in all cases. The strength of social safety nets  is 
one key consideration in developing policy responses. Strong social safety nets can increase 
households' resilien ce to the shock, protecting them from falling (deeper) into poverty. 
Countries with strong social safety nets are generally able to protect poor and vulnerable 
households, while those with weaker social safety nets would typically face difficulties in 
reaching vulnerable households in a timely manner.  
 
• In the presence of weaker social protection systems, it may not be possible to channel 
support to the most affected households by temporarily scaling up existing benefits. In such 
cases, focusing on a priority can help avoid administrative complexity and d ifficulties in 
targeting. For many developing economies, this may be food security .28 
 
• Other general considerations include the availability of fiscal space , and threats to food 
and energy insecurity .29 
 
• Policy responses must also be cost-effective , which favours providing time-bound and 
targeted  (rather than broad -based) support.30 General measures aiming to offset the loss 
of real income have important budgetary implications. A focus on protecting the poor and 
vulnerable households which tend to spend a g reater share of their incomes on energy limits 
this overall cost and targets assistance to those who have more limited means to cope with 
a rapid increase in the cost of living. For the same reason, it is also important to have a clear 
rationale and durati on behind support extended to firms.  
 
3.2  Moving away from price support measures  
• Policy responses  should generally  allow domestic prices to follow international prices 
(pass -though) .31 Temporary measures that suppress price increases can be a response to 
a short -lived shock in countries with ample fiscal space. However, studies show that these 
measures are an inefficient tool to protect the economically vulnerable, are fiscally costly, 
and they mute the demand adjustment to the price shock (including energy -conserving 
behaviour and energy efficiency investments). Price support measures for the most part are 
the main driver behind the increase in fossil fuel subsidies. When end -user energ y (e.g. 
electricity, natural gas, and gasoline) prices are capped at below cost recovery, they can 
also cause large losses further upstream in the energy supply chain thereby discouraging 
new infrastructure investments and ultimately exacerbating supply sh ortages.32 
 
• Similar considerations apply to  energy tax reductions . Whether targeted at excise duties 
or value -added taxes, they also seek to reduce the effective price that consumers pay.33 
Like price controls, these policies are relatively quick and simpl e to implement, communicate 
and reach individuals. Similarly, they also weaken price signals and the incentives to reduce 
consumption levels. Reductions in tax rates or tax exemptions are also typically difficult to 
target. Moreover, once a tax rate is red uced, studies have shown that political economy 
constraints make it difficult to reverse, even if the rate reduction is announced as 
temporary.34 
 
• Some countries have come up with more flexible approaches  with the goal to reduce 
demand for electricity and redistribute the energy sector's surplus revenues and profits. For 
instance, instead of fixing the price of electricity on the market, governments have 
introduced a mandatory cap on market revenues of electricity producers. Another measure 
taken was to set  a mandatory temporary solidarity contribution on the surplus profits of 
 
27 IMF 2022, Fiscal Policy for Mitigating Social Impact of High Energy and Food Prices . 
28 World Bank 2022, Fiscal Implications of the Deteriorating Global Economic Environment for Emerging  
Market and Developing Economies . 
29 IMF 2022, Fiscal Policy for Mitigating Social Impact of High Energy and Food Prices . 
30 IMF 2022, Surging Energy Prices in Europe . 
31 OECD 2022, Policy responses to rising energy prices . 
32 World Bank 2 020, Price Controls: Good Intentions, Bad Outcomes . 
33 OECD 2022, Why governments should target support amidst high energy prices . 
34 World Bank 2022, Fiscal Implications of the Deteriorating Global Economic Environment for Emerging  
Market and Developing Economies . INF/TE/FFSR/W/1  
 
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  businesses in the petroleum, natural gas, coal, and refinery sectors, calculated on taxable 
profits.35 
 
3.3  Focusing on targeted and income -based support  
• IMF reporting advocates a policy focus on  providing vulnerable households with income 
support  without distorting the marginal price they pay for energy.36 This helps support 
those that need it the most and helps contain fiscal costs. In contrast to price support, 
income support measures, such as temporary means -tested transfers, do not mute price 
signals, thereby encouraging energy savings and fuel switching, resulting in lower GHG 
emissions.37 
 
• There is scope for targeting of support to use criteria beyond income  to include other 
factors that determine the degree of a household's financial vulnerability, e.g.  housing 
location and quality, and household composition.38 
 
• Innovations in transfer mechanisms  may be needed to ensure that groups that are most 
vulnerable t o the energy price shock are reached. This is because countries with weak social 
benefit systems, e.g. due to high informality or lack of institutional capacity, may find 
targeting challenging. Even in countries where social benefits systems are more 
sophi sticated, effective targeting is not simple.39 Digital delivery methods for transfers may 
be required, to bank accounts and via mobile applications, for example, especially in 
countries with high informality rates.40 
 
• Implementing subsidies to vulnerable c onsumers is assisted by robust information 
systems  at the level of national social security, linked to databases with information on 
individual energy consumption, as well as the broader socio -economic context. Efforts 
focused on efficient targeting can he lp create consumer databases that can be instrumental 
in implementing future fiscal measures to facilitate the social equity and fairness of the 
energy transition.41 
 
• Taxing the windfall profits  of some energy producers is an option in some cases, but 
careful design is key to avoiding unintended consequences. Some countries have introduced, 
or are considering, taxes on the windfall profits of extractive industries and/or some other 
energy suppliers to help offset the costs of relief policies.42 
 
• Even as sup port is extended to vulnerable households and firms, the IMF recommends that 
the broader fiscal stance should remain consistent with macroeconomic policy 
objectives . This means that, in countries where inflation is running well above target, fiscal 
policy changes should not add to aggregate demand to avoid exacerbating price pressures.43 
 
• Targeting is also seen as important when providing support to firms . A logical focus 
would be on companies that were previously solvent but are suffering from liquidity an d 
solvency problems deriving directly from the crisis. However, the need for firms to adapt 
over time, suggests that support should be time -limited even when energy costs remain 
high. More generally, there is a need for government support to firms to be tr ansparent, 
proportionate, and non -discriminatory.44 
 
• Income policies  maintain the incentive of the high energy prices to reduce energy demand. 
They can also be more easily targeted to vulnerable groups, and thereby provide more relief 
 
35 See e.g. European Union's mandatory c ap on energy market revenues and mandatory solidarity 
contribution . 
36 IMF 2022, Surging Energy Prices in Europe . 
37 OECD 2022, Why governments should target support amidst high energy prices . 
38 OECD 2022, Why governments should target support amidst high energy prices . 
39 OECD 2022, Why governments should target support amidst high energy prices . 
40 OECD 2022, Policy responses to rising energy prices . 
41 WEF 2023, Why the response to the energy c risis must embrace an accelerated and balanced 
transition . 
42 IMF 2022, Surging Energy Prices in Europe . 
43 IMF 2022, Surging Energy Prices in Europe . 
44 OECD 2022, Why governments should target support amidst high energy prices . INF/TE/FFSR/W/1  
 
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  for a given amount th an price policies (may depend on design features). The additional 
administrative complexity in targeting income policies can be reduced if the measure can be 
linked to other means -tested benefits. Income policies may also be easier to remove when 
energy pr ices stabili ze to avoid those policies outliving their motivation.45 
 
• Some countries have chosen to impose additional charges  on electricity consumers with 
the aim to stabilize electricity tariffs which are progressively classified according to 
consumption  tranches. Thus, customers with consumption of less than certain kW/h per 
month could be exempt from such charges, while customers exceeding certain consumption 
would bear most of the collection.46 
 
3.4  Embedding time -limits, reviews, and sunset clauses  
• Lessons from international experience strongly suggest that any subsidy measure to keep 
fuels, electricity or gas affordable in response to a crisis should be in particular time-bound 
with clear end -dates and, if need be, extension mechanisms.47 
 
• Introducing regular review clauses  in policies is another mechanism used by governments 
to ensure measures remain temporary.48 
 
• The insertion of sunset clauses  can also set an explicit expiration date and prevent 
temporary support from operating indefinite ly. It also gives stakeholders a clear expectation 
about when a subsidy would end, reducing the risk of dependency and lock -in.49 
 
• Built -in transition mechanisms , such as gradual increases in electricity prices to adapt 
to international prices, could be us eful to ensure smooth and progressive adaptation.50 
 
3.5  Encouraging energy efficiency  
• If the goal is to protect consumers from price shocks, it is important to recognize the 
potential of energy efficiency and conservation as the "first fuel"  and to ensure tha t 
short-term measures do not disincentivize energy efficiency and conservation.51 
 
• Experience shows that countries that placed an emphasis on energy efficiency over the last 
few decades now see lower consumer costs, lower fuel imports, and lower emissions.  Key 
measures have included upgrading the efficiency of homes  and other buildings, as well 
as encouraging people  to take action by reducing the temperature of their heating 
thermostat.52 
 
• Citizens' participation has long been a challenge, but the pandemic lockdowns have shown 
that creative communication relaying trustworthy and consistent information  can 
lead to strong engagement. Information and campaigns flanked by incentives linked to 
switching to energy -efficient equipment or purchasing digital enablers  measuring and 
optimizing domestic consumption have been utili zed.53 
 
 
45 Centre for Economic Policy Research 2022, Targeted income support is the most social and climate -
friendly measure for mitigating the impact of high energy prices . 
46 See e.g. Chilean government 's tariff stabilization fund . 
47 World Bank 2022, Amid energy price shocks, five lessons to remember on energy subsidies . See e.g. 
European Union's mandatory cap on energy market revenues . 
48 See e.g. New Zealand government 's transport temporary relief package . 
49 Sovacool 2017, Reviewing, Reforming, and Rethinking Global Energy Subsidies: Towards a Political 
Economy Research Agenda . 
50 See e.g. Chilean government 's tariff stabilization system . 
51 World Bank 2022, Amid energy price shocks, five lessons to remember on energy subsidies . 
52 IEA 2022, Accelerating energy efficiency: What governments can do now to deliver energy savings . 
53 WEF 2023, Why the response to the energy crisis must embrace an accelerated and balanced 
transition . INF/TE/FFSR/W/1  
 
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  • International agencies have also outlined steps that businesses can take  to use energy 
more efficiently and wisely, making them more resilient and secure – both in the short and 
in the l ong term.54 
3.6  Accelerating the green transition  
• At the same time as phasing out interventions that blunt price signals and dampen incentives 
to reduce fossil -based energy use and building capacity to better address household 
vulnerabilities to price shocks, there is a place for policy measures aimed at accelerating 
the development of alternative sources of energy . This can be done, for instance, by 
supporting energy efficiency improvements and ensuring that networks and infrastructure 
are adapted to zero -carbon technologies. Over time, investing in capac ities for energy users 
to adapt their energy consumption and shift to alternative fuels is expected to be a common 
priority for climate, energy, and social policies.55 
 
• Accelerating the green transition  is seen as the best way to limit vulnerability to spi kes 
in fossil fuel prices and enhance energy security, with a focus on developing alternative 
energy sources and transportation modes.56  This also entails a scaling up of investment 
in renewable energy development , while ensuring the availability of a low -emission and 
diversified fuel and energy trade mix. This would help ensure a balance of affordability, 
security and sustainability on the supply side and ultimately help address current 
vulnerabilities.57 
 
• Other ways to ensure  that temporary support to th e energy sector does not act counter 
to climate objectives include measures that give temporary relief from peak prices could 
transition to the introduction of carbon taxes to ensure carbon prices remain at a level that 
is consistent with climate mitigatio n objectives in the medium - to long -term.58 
 
3.7  Phase -out considerations  
• When phasing out national fiscal measures introduced to protect households and firms from 
an energy price shock, there is a case for starting with the least targeted ones . If an 
extension of support measures was considered necessary because of renewed energy 
pressures, better targeting of these measures and refraining from generali zed support 
should also be considered.59 
 
• The IMF also points to the risks if a substantial part of t he increase in energy costs is likely 
to persist and argues that governments would need to phase out costly measures and 
identify sustainable revenue sources  (e.g. new or increased carbon taxes that could 
come into effect when international energy commodit y prices fall) to finance targeted 
support . More generally, the IMF notes the benefits of policies to counter the effects of high 
energy prices have to be weighed against the economic cost of financing such policies by 
raising additional revenues or cuttin g other expenditures.60 
 
3.8  Fostering international cooperation  
• There is a case for economic support to not only be targeted and income -based, but also 
coordinated across countries  to discourage arbitrage .61 
 
 
54 IEA 2022, Coping with the Crisis: Increasing Resilience in Small Businesses in Europe through Energy 
Efficiency .  
55 OECD 2022, Why governments should target support amidst high energy prices . 
56 IMF 2022, Fiscal Policy for Mitigating Social Impact of High Energy and Food Prices . 
57 WEF 2023, Why the response to the energy crisis must embrace an accelerated and balanced 
transition . 
58 World Bank 2022, Fiscal Implications of the Deteriorating Global Economic Environment for Emerging  
Market and Developing Economies . 
59 European Commission 2023, Fiscal policy guidance for 2024 . 
60 IMF 2022, Surging Energy Prices in Europe . 
61 WEF 2023, Why the response to the energy crisis must embrace an accelerated and balanced 
transition . INF/TE/FFSR/W/1  
 
- 12 - 
 
  • Solutions and strategies to address energy securit y need to consider the implications on 
energy transition and help hedge against its disruptions. This argues for more coordination 
between countries and between the public and private sectors, as well as more policy 
coordination, for example, to strengthen  and unify energy grids to deal with the uneven 
distribution of renewable resources.62 
 
•  The World Bank has pointed out that many developing countries, and most importantly low -
income and fragile countries, may need support from the international community to 
mitigate adverse impacts on their economies, households, and businesses.  It has refe rred 
to engagement in supporting countries to address these challenges, potentially in the form 
of scaled -up finance, technical assistance, and analytic and advisory activities to support 
green, resilient, and inclusive development.63 
 
• Voluntary, bottom -up, cross -country peer reviews  of governmental support have been 
shown to lead to improvements in valuation and legitimacy.  
 
__________  
 
62 WEF 2023, Why the response to the energy crisis must embrace an accelerated and balanced 
transition . 
63 World Bank 2022, Fiscal Implications of the Deteriorating Global Economic Environment for Emerging  
Market and Developing Economies .