7 June 2010: Subsidies should be switched

Low carbon energy sources – renewables, CCS and nuclear – all require public financial support. In the UK, the new government has said that there will be no subsidy for new nuclear power stations. Without financial support, no new nuclear stations will be built. Nor will any renewables or CCS – offshore wind and CCS are, in the view of many, going to be even more expensive than nuclear. Energy policy will not be left entirely to the market – an Emissions Performance Standard, which will prevent any new dirty coal stations, is promised. Without subsidy, this regulated market will lead only to another ‘dash for gas’. In places lacking an Emissions Performance Standard, an unsubsidised market will lead to an expansion of filthy coal.

The notion of energy subsidies may offend free marketeers, but they are nevertheless very large, in both developed and developing countries. Annual subsidies to fossil fuels in developed countries have been estimated by one study to be $67 billion (see Oil Change International: Redirecting Public Subsidies for Fossil Fuels in and from Annex 1 Countries). According to a study by the International Energy Agency (IEA), reported in today’s FT, 37 large developing countries spend more than $550bn in energy subsidies a year, about 75% more than previously thought. The 37 countries surveyed spent, on average, about 2% of their GDP on energy subsidies. Most of the subsidy goes to fossil fuels, and most of that to schemes without CCS. Iran, Russia, Saudi Arabia, India and China top the ranking.

Last year, the G20 agreed to phase out subsidy, though this has yet to lead to any significant progress. The IEA report will be discussed at this month’s G20 summit in Toronto. Developing countries such as India argue, correctly, that energy subsidy is needed for development and poverty reduction. Therefore, the debate should not be between subsidy and no subsidy, but between subsidy for low carbon energy and energy efficiency and subsidy for high carbon energy.

UN Secretary-General, Ban Ki-moon, summed up this scandal very well last year:

“Continuing to pour trillions of dollars into fossil-fuel subsidies is like investing in sub-prime real estate. Our carbon-based infrastructure is like a toxic asset that threatens the entire portfolio of global goods – from public health to food security. We must direct investment away from dirty energy industries.”

The G20 meeting in Toronto must direct the investment instead into cleaner energy industries.

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1 Comment

  1. Alessandro De Maida

    Why don’ t introduce a fiscal-neutral carbon tax, instead, like that proposed by prof James Hansen ?
    ” Tax and 100% dividend. A “carbon tax with 100 percent dividend” is needed to
    reverse the growth of atmospheric CO2. The tax, applied to oil, gas and coal at the mine or
    port of entry, is the fairest and most effective way to reduce emissions and transition to the
    post fossil fuel era. It would assure that unconventional fossil fuels, such as oil shale and tar
    sands, stay in the ground, unless an economic method of capturing the CO2 is developed.
    The entire tax should be returned to the public, equal shares on a per capita basis (half
    shares for children up to a maximum of two child-shares per family), deposited monthly in
    bank accounts. No bureaucracy is needed.
    A tax should be called a tax. The public can understand this and will accept a tax if it is
    clearly explained and if 100 percent of the money is returned to the public…”

    It seems me this is a more effective strategy than a feed-in tariff for efficiency, renewables or even nuclear

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