10 November 2010

An Interesting Look at Energy Subsidies

At the Breakthrough blog, Jesse Jenkins has this interesting analysis of numbers provided by the IEA's WEO 2010 (emphasis added):
While I certainly support the IEA's calls to phase out fossil fuel subsidies -- excepting where those would expand the already deplorable share of the global population (about 2.4 billion) locked in energy poverty -- the IEA figures on energy subsidies are actually a stark reminder of the major cost gap that persists between fossil energy and costlier clean energy alternatives.

If renewables account for a 7% share of global energy energy demand, and recieve $57 billion in subsidies, that's $8.14 billion for each percentage share of global demand. In contrast, fossil fuels supply about 83% of the global energy mix (nuclear accounts for the remaining 6%, according to the IEA) and recieve $312 billion in subsidies, for $3.76 billion per percentage share of global energy supplied.

In other words renewables recieve more than double the subsidy rate per unit of energy supplied as fossil fuels. When you consider that hydropower, which rarely requires or recieves subsidy, accounts for the vast share of global renewable energy production, the relative subsidy rate for wind, solar and other renewables per unit of energy produced is much higher.

This is why I always come back to the urgent need to make clean energy cheap, in real, unsubsidized terms. Ending fossil energy subsidies will help level the playing field, but only real innovation to drive down price and improve performance for a full suite of clean energy technologies can ensure that a meaningful share of global energy demand can be supplied by low-carbon alternatives to fossil fuels.
 The debate involving subsidies should not be about "subsidization or not," but rather: in what contexts do certain types of subsidies make sense?  The former is a recipe for empty ideological debates, and addressing the latter requires some thoughtful policy analyses, with answers that are not always clear cut.


  1. The underlying assumption, that there is just a lack of innovation that is preventing us from entering the age of cheap alternatives, is one worth critiquing. The one proven alternative we are not exploiting properly is nuclear.

  2. I would be curious as to where the numbers come from, particularly the $312 Billion for fossile fuels. I suspect there is tremendous disparity in the amount of subsidies by country. Is there a report availabe on-line that looks at each country and how they subsidize specific energy sources?

  3. Frontiers of Faith and Science

    I believe nuclear will be the biggest winner, certainly in Britain and probably in the US. The wind turbines are loss leader to please the eco lobby and to hide the massive corporate lobbying, especially to those of us who can remember previous dirty tricks (and the military angle).

    Brown calls for eight new nuclear plants (July 14 2008)

    New stations to be part of 'nuclear renaissance' ·



    This is the big game. Raise the price of all energy.


    LONDON, May 26 2009 (Reuters) - Britain should encourage investment in low-carbon energy like nuclear power by setting a minimum charge that fossil fuel burning generators must pay to emit climate-warming carbon dioxide, EDF Energy said on Tuesday.


  4. Yes, nuclear is underdeveloped because innovation is effectively blocked by the NRC/DOE.

    There are vastly cleaner nuclear fuel cycles than the uranium/plutonium cycle currently used in LWRs.

    LFTR (liquid fluoride thorium reactor) technology can compete with coal on a cost basis (and is safer, cleaner and more proliferation resistant). Thus satisfying Rogers "quest" for cheaper than coal clean energy.


  5. Just to clarify

    Saudi Arabia and Iran account for $100 billion of the $312 billion in subsidies.

    Just eyeballing the fossil fuel subsidies by country the vast majority are in energy exporting countries where domestic fuel prices are subsidized.

  6. http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf

    U.S. energy subdsidies as of 2007, from the EIA.
    The bulk of fossil fuel subsidies go to coal.

    It's not really an honest accounting because it makes no distinction between tax credits (ethanol) and tax deferrals (intangible drilling costs). Tax deferrals by definition sum to zero over time, so the ultimate cost to the government is the difference between a tax dollar received today and the present value of a tax dollar received at some future date. At a time of low interest rates and inflation, that's going to be a very small number.

  7. Roger:

    The disparity is even greater that the Breakthrough numbers imply. IEA says that its analysis of government support for renewables——funny how it’s a “subsidy” when applied to a fossil fuel and “support” when it applies to a renewable——includes wind, PV, geothermal and biomass in the power sector (but not large hydropower) and biofuels in the transport sector. A quick look at the IEA data shows that these renewable sources account for less than 2% of total global energy demand, not 7%. So instead of $8.14, renewable subsidies per percentage point of demand were roughly $32 billion in 2009, or about 750% higher than amount fossil fuels received.

    A better way to look at the relative subsidy amounts doled out for fossil fuels and renewables is to do so on the basis of energy delivered. Using estimated demand figures for 2009, it looks like oil received a subsidy of about $31 per ton of oil equivalent (TOE), natural gas about $32 per TOE, coal less than $2 per TOE, fossil fuel electricity about $25 per TOE, renewable electricity about $215 per TOE, and biofuels about $420 per TOE. Quite a difference.