Fossil fuel subsidies encourage wasteful consumption

The International Energy Agency released its World Energy Outlook 2010 today. The report bluntly observed that in terms of taking on Climate Change, actions taken under the expected scenario made “it all but impossible to achieve the 2° C goal” from the Copenhagen Accord. 

The 2° C goal is the non-binding objective established at the December 2009 climate change conference in Copenhagen. Based upon the expected scenario of cautious implementation of emissions constraints, the IEA anticipates a “likely temperature rise of more than 3.5° C in the long term.”

The biggest gains in renewable generation are expected from hydro and wind. Solar PV generation is anticipated to grow very rapidly, though still reaching just 2% of global generation in 2035. Under the expected scenario, combined renewable generation is anticipated to reach one-third of global generation and catch up with coal.

With respect to achieving the Copenhagen Accord’s goal, the report states:

“The timidity of current commitments has undoubtedly made it less likely that the 2°C goal will be achieved. Reaching that goal would require a phenomenal policy push by governments worldwide…  The technology exists today to enable such a change, but such a rate of technological transformation would be unprecedented. These commitments must be interpreted in the strongest way possible with much stronger commitments adopted and acted upon after 2020, if not before.”


3 Responses to “IEA Releases World Energy Outlook 2010”

  1. David,

    Can you please show us the chart above as cents per kWh instead of just billions of dollars?

    Then it would become crystal clear that the so-called “renewable” subsidies are the ones that actually encourage wasteful consumption.

    • Hi ECD Fan,

      Good question. Unfortunately, I do not have access to that data. The data that we have – from Germany the world’s largest market for wind and solar – is a small annual premium in electricity costs to the average household equivalent to a few Euros per month.

      In contrast, aggregate damages associated with SOx, NOx, and particulate matter in 2005 from US coal plants alone were estimated at 3.2 cents/kWh and an aggregate $62 billion – an amount not included in the above graph.

      Perhaps, what we should really look at is a full costing. And, we should look at replacement costs for current generation equipment. The next hydro dam or coal plant will cost more than the current plants.

      With respect to full costing, beyond the fossil fuel subsidies provided by the IEA, when we compare support for renewables to conventional sources, we should include some of the following as well:
      • Foreign tax credits for overseas oil production
      • Nuclear waste fund shortages
      • Nuclear industry insurance subsidies
      • Nuclear loan guarantees
      • Subsidized debt incentives to purchase passenger vehicles
      • Under-market auctions of federal land for drilling rights, coal mines
      • Health care costs
      • Damages unrelated to climate change
      • Etc.

      While renewable programs are new, the oil and gas and coal industries have been receiving subsidies for close to a century. Notably, US fossil fuel subsidies were not even included in the IEA’s ‘direct subsidy’ estimates, nor were the many hidden subsidies in OECD nations. Where renewables subsidies are short-term measures, the largest US tax code subsidies for fossil fuels, for example, have been permanent US Tax Code provisions.

      US Federal Subsidies

      As a 2007 OECD report underscored,
      “Estimating U.S. oil and gas subsidies is very challenging. Subsidies rarely involve cash payments. Instead scores of U.S. government agencies and departments create hundreds of programmes to support the U.S. energy sector. And there is no requirement for the federal government to keep track of all this. Energy subsidies are often simply hidden from public scrutiny.”

    • Great article in the Economist today that speaks directly to your question:

      Green view: How to save $300 billion

      Regards, David


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