Fossil Fuel and Renewable Energy Subsidies on the Rise
New Worldwatch Institute report discusses the rise in subsidies for renewable and fossil fuel-based energy production
Washington, D.C.----Total
subsidies for renewable energy stood at $66 billion in 2010, but are
still dwarfed by the total value of global fossil fuel subsidies
estimated at between $775 billion and more than $1 trillion in 2012,
according to new research conducted by the Worldwatch Institute (www.worldwatch.org) for its Vital Signs Online
service. Although the total subsidies for renewable energy are
significantly lower than those for fossil fuels, they are higher per
kilowatt-hour if externalities are not included in the calculations,
write report authors from Worldwatch's Climate and Energy team.
Estimates based on
2009 energy production numbers placed renewable energy subsidies between
1.7¢ and 15¢ per kilowatt-hour (kWh), while subsidies for fossil fuels
were estimated at around 0.1-0.7¢ per kWh. Unit subsidy costs for
renewables are expected to decrease as technologies become more
efficient and the prices of wholesale electricity and transport fuels
rise.
The production and
consumption of fossil fuels add costs to society in the form of
detrimental impacts on resource availability, the environment, and human
health. The U.S. National Academy of Sciences estimates that fossil
fuel subsidies cost the United States $120 billion in pollution and
related health care costs every year. But these costs are not reflected
in fossil fuel prices.
"These so-called
hidden costs, or externalities, are in fact very real costs to our
societies that are not picked up by the polluter and beneficiary of
production but by all taxpayers," said Alexander Ochs, Director of Worldwatch's Climate and Energy program and report co-author.
"Local pollutants from the burning of fossil fuels kill thousands in
the U.S. alone each year, and society makes them cheaper to continue
down their destructive path."
Shifting official
support from fossil fuels to renewables is essential for decarbonizing
the global energy system. Such a shift could help create a triple win
for national economies by reducing global greenhouse gas emissions,
generating long term economic growth, and reducing dependence on energy
imports.
According to
projections by the International Energy Agency (IEA), if fossil fuel
subsidies were phased out by 2020, global energy consumption would be
reduced by 3.9 percent that year compared with having subsidy rates
unchanged. Oil demand would be reduced by 3.7 million barrels per day,
natural gas demand would be cut by 330 billion cubic meters, and coal
demand would drop by 230 million tons of coal. And the effects of the
subsidy removal would extend beyond the end of the phaseout period. By
2035, oil demand would decrease by 4 percent, natural gas by 9.9
percent, and coal demand by 5.3 percent, compared with the baseline
projection.
Overall, carbon
dioxide emissions would be reduced by 4.7 percent in 2020 and 5.8
percent in 2035. The IEA's chief economist recently estimated that eliminating
all subsidies in 2012 for coal, gas, and oil could save as much as
Germany's annual greenhouse gas emissions each year by 2015, while the
emission savings over the next decade might be enough to cover half of
the carbon savings needed to stop dangerous levels of climate change.
"At the same time, a
phase-out of fossil fuel subsidies would level the playing field for
renewables and allow us to reduce support for clean energy sources as
well," said Ochs. "After all, fossil fuels have benefited from massive
governmental backing worldwide for hundreds of years."
Progress toward a
complete phaseout, however, has been minimal. The 2009 pledge by the
Group of 20 major economies to reduce "inefficient fossil fuel
subsidies" has been left vague and unfulfilled. The lack of a definition
has left countries to make their own determination if their subsidies
are inefficient. As of August 2012, G20 countries had not taken any
substantial action in response to the pledge----six
members opted out of reporting altogether (an increase from two in
2010), and no country has yet initiated a subsidy reform in response to
the pledge. Furthermore, there continues to be a large gap between
self-reported statistics and independent estimates in some countries.
Some argue that
reducing subsidies would disproportionately affect the poor. An IEA
survey of 11 developing and emerging countries, however, found that only
2-11 percent of subsidies went to the poorest 20 percent of the
population, showing that subsidies tend to be regressive.
Fossil fuel subsidies
continue to far outweigh support for renewable energy. Although
independent reporting on these subsidies has increased, global efforts
to move forward with subsidy reform have been hindered by a variety of
causes, leaving international pledges unfulfilled.
Further highlights from the report:
- Global production subsidies total an estimated $100 billion per year, and consumption subsidies add to roughly $675 billion.
- In 2010, developing countries spent roughly $193 billion, or 47 percent of all fossil fuel consumption subsidies, on oil, while industrial countries spent roughly $28 billion.
- Since 2007, roughly 80 percent of spending on consumption subsidies occurred in countries that are net exporters of fossil fuels.
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