Subsidising coal, oil, and gas

Tweet This report is worth a read.  It’s not exactly recent (November 2013) but it’s one of those things that I’ve only just got around to reading.

One of the frequent refrains of the opponents of wind farms is that they wouldn’t be built if it weren’t for the subsidies.  Take away the subsidies and no one would ever build a wind farm again.  Like all good propaganda, it has the advantage of being true, as far as it goes.  It isn’t the whole truth though, and they get away with it only because the subsidies for renewable energy are more obvious than the subsidies for other forms of energy.

What this report highlights is that when the subject is looked at more comprehensively, it becomes clear that for every £1 spent to support renewable energy, £6 is spent on fossil fuel subsidies.  The total subsidy, just to the producers of fossil fuels (i.e. without counting consumer subsidies) amounted to some $523 billion worldwide in 2011.  The subsidies aren’t always obvious, and take many forms, some of which are set out in the report.  But the basic message is clear – we are paying more to subsidise fossil fuel then we are to subsidise renewable energy – it’s the complete reverse of the claims made by those opposing renewable energy schemes.

Now, of course, statistics can be selected and it’s important to compare like with like.  We also need to consider the state of development of different technologies.

So, for instance, the world uses much more fossil fuel than renewable energy; even if the subsidy per kilowatt hour were to be the same, one would therefore expect a higher total to go on fossil fuels than on renewables.  In fact, given that renewables is a newer and still developing technology, the subsidy per kilowatt hour is generally likely to be higher than in the case of fossil fuels.

That is not, however, enough to “prove” the point which the antis make.  Subsidies – any sort of subsidies – for fossil fuel encourage their continued use, and mean that renewable energy is competing with subsidised fossil fuel and that people are still being incentivised to continue using fossil fuel.  Take away those subsidies completely, and the requirement for any subsidy for developing new technologies reduces dramatically.

So why does it happen?  At its simplest, the governments paying subsidies are afraid of exposing us to reality when it comes to the cost of energy.  Energy represents such a large proportion of household and industrial costs that governments believe that paying the true cost would be an enormous price shock.  So they take all sorts of actions to reduce and/or hide the costs.  We still pay in the end of course through taxation.  We just delude ourselves.

It can’t continue indefinitely though.  Sooner or later we need to face up to the real cost of our demand for energy.  Perhaps then we’ll do what we really need to do, which is to reduce our demand rather than play games with the price.