Energy subsidies have played a significant role in shielding Maltese households and businesses from rising international energy costs. Given the 2022 war and the conflict happening in the middle east lately, energy prices has fluctuated a lot over the past year. It helping to maintain purchasing power and support economic competitiveness. However, a simulation conducted by the Economic Policy Department, as presented by the finance minister and reported by Times of Malta, suggested that removing these subsidies could lead to a decline of approximately €630 million in Malta's GDP over a three-year period.

While these measures have focused on short-term economic relief, it's also important to consider their long-term financial and environmental implications. Government estimates suggest that spending on energy and food subsidies will increase from €188.1 million in 2025 to €391.7 million in 2026, raising questions about the sustainability of such expenditure over time.

From an environmental economics standpoint, keeping energy prices artificially low could discourage consumers and businesses from reducing their energy consumption. Moreover, it could help delay the transition to more efficient and environmentally friendly alternatives. The debate goes beyond the potential economic impact of removing subsidies. It raises a broader question of how Malta could continue supporting households and businesses while promoting more efficient energy use.

Moving forward, a gradual shift towards more targeted financial assistance, complemented by greater investment in renewable energy and energy-efficient technologies, could result in Malta achieving a better balance between economic resilience and its long-term sustainability objectives.

Energy subsidies may also fail to internalise the negative externalities associated with fossil fuel combustion arising from additional electricity consumption. By keeping energy prices artificially low, subsidies may encourage higher consumption while the wider environmental costs, including increased emissions, are not fully reflected in the price paid by consumers.

References:

1. Times of Malta (2026). Energy subsidies split experts, with economic fallout warning. 7 October 2026. Available: https://timesofmalta.com/article/energy-subsidies-split-experts-economic-fallout-warning.1135188

2. Times of Malta (2026). Clyde Caruana warns of economic catastrophe if subsidies are removed. 30 September 2026. Available: https://timesofmalta.com/article/clyde-caruana-warns-economic-catastrophe-subsidies-removed.1134882

3. Government of Malta (2026). Ministry for Finance – Press Release PR261587. 30 September 2026. Available: https://www.gov.mt/en/Government/DOI/Press%20Releases/Pages/2026/09/30/PR261587.aspx

4. Energy Subsidies in Malta: Estimating the Effects of Current Policies and Hypothetical Exit Strategies. Central Bank of Malta, Discussion Paper 04/2025. Available: https://www.centralbankmalta.org/site/Publications/Economic%20Research/2025/DP-4-25.pdf