Fossil Fuel Subsidies Dampen Shift Towards Renewables

NEW YORK – Despite evolving public awareness and alarm over climate change, subsidies for the production and consumption of fossil fuels remain a stubborn impediment to shifting the world’s energy matrix towards renewable sources.

Collectively, fossil fuel subsidies amount to a nearly two-trillion-dollar oar left dragging in the water.

Today, lawmakers hold routine hearings on climate change’s costs and mitigation, citizens in developing nations demand reparations for extreme weather, and even multinational corporations have tepidly begun advertising that rising seas could spill over onto their bottom lines.

But talk is one thing, money quite another.

“If you can remove fossil fuel subsidies, then renewables are the clear choice, they are far cheaper in the long run,” said Philipp Tagwerker, research fellow at the Worldwatch Institute and author of a recent report tallying subsidies. “Renewables are competitive at the moment, but it takes political will to change.”

After the 2008 financial crisis, subsidies fell along with plummeting energy prices, but by 2011 they had rebounded to pre-crisis levels. That volatility, whether due to supply and demand or geopolitics and speculation, is partly why countries are looking to lessen their exposure to carbon-based fuels.

Though definitions vary, in 2013 the IMF found that when “post-tax” externalities like carbon emissions, effects on health and resource scarcity were considered, global subsidies of fossil fuels rose to “$1.9 trillion worldwide – the equivalent of 2.5 percent of global GDP, or 8 percent of government revenues.” Estimates for renewable subsidies top out at a comparably measly 88 billion dollars globally.

“That’s a pretty hard equation to overcome,” said Dr. Daniel M. Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley. “Fossil fuels not only have the advantage of subsidies, but they are the incumbent.

“That said we are seeing much faster growth in the renewable sector,” Kammen told IPS. “The economic story around renewables has shifted. It’s not just wind – solar is competitive now, and we are seeing big pushes for geothermal.”

Though critics of renewables often cite their higher cost per kilowatt-hour (kWh) compared to traditional sources, when externalities are considered, that dynamic is reversed. According to the Worldwatch report, customary analyses find it can take up to 15 cents of a renewable subsidy to generate one kWh, far higher than the 0.1 to 0.7 cents per kWh for fossil fuels. But including externalities immediately tacks on an additional 23.8 cents per kwh to fossil fuels but only half a cent to renewables.

Tagwerker writes that “accelerating the phaseout of fossil fuel subsidies would reduce CO2 emissions by 360 million tons in 2020, which is 12 percent of the emission savings that are needed in order to keep the increase in global temperature to 2 degrees Celsius.”

A mixed support system

Generally, consumption subsidies that lower prices at the point of sale have prevailed in the developing world, while producer subsidies have been more common in industrialised countries.

Over the past decade, while fossil fuel subsidies haven’t abated, their characterisation has shifted from one of necessity to troublesome vestige.

Last year, the G20 reiterated its pledge to “phase out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term.” And during his January State of the Union address, U.S. President Barack Obama told Congress “climate change is a fact” and called for the phasing out of an estimated four billion dollars in tax breaks and incentives – many dating back a century, when oil exploration was dangerous and far more expensive – that U.S. companies enjoy every year.