The International Monetary Fund (IMF) has declared that countries will need to invest more in renewable energy to protect against volatility in oil and gas prices

The multilateral credit agency on Wednesday also advised governments against floating subsidies as measures to soften prevailing surge in energy prices, warning that it would encourage emissions and wasteful consumption by the affluent.

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According to Paulo Medas of the IMF’s Fiscal Affairs Department, broad subsidies are expensive, and policymakers should use targeted aid to help low income families most impacted from the recent surge.

Medas told reporters that generalized energy subsidies “benefit rich households who don’t need the support,” making them very costly.

In addition, “they are not friendly to the environment, in fact they lead to very negative incentives.”

The IMF recommends “using more targeted support to those that are more vulnerable, and the hardest hit” including cash transfers or subsidizing electric bills for low income families.

Oil prices have been surging in recent weeks to the highest levels seen in years, pushing above $80 a barrel, which has added to worries that inflation may be moving higher permanently.

Medas said the increase was expected to some degree as global demand rebounded amid the recovery from the Covid-19 pandemic, but he underlined the IMF’s push for countries to move to more green energy.

“The reality is that we have faced these large volatilities in oil and gas prices for a long time. And the only way to deal with this in a permanent way” is to invest more in renewable energy, he said.

“This is going to be the only way to build a resilient economy, and protect households from the volatility in oil and gas prices.”