Time to Come Clean on Energy Subsidies?

What you don’t know will hurt you. That’s the message in Michael Lewis’ new book, “The Big Short,” which traces today’s worldwide economic downturn to a single problem: the secretive nature of prices in the subprime mortgage bond markets.

What’s this got to do with energy? Our industry has its own opaque corners that can cause widespread damage. This week the International Energy Agency (IEA) is attempting to focus light on a big one: energy subsides for fossil fuels.

It’s pretty easy to find out about incentives for clean energy, but not so simple to untangle how much government money supports coal, gas and oil, as they move from research & development through delivery to the consumer.

I suspect we hear so much about clean energy subsidies because they offer good PR for politicians. Government news releases tout new energy efficiency or renewable energy programs. But how often do you hear an elected official brag about offering subsidies to the fossil fuel industry? Is there a Database of State Incentives for Renewables & Efficiency (DSIRE) for fossil fuels I suspect not.

This creates a public image problem for clean energy. People think renewable energy gets government support and fossil fuels do not. I often hear the question: If green is so good, why can’t it stand on its own two feet? Green advocates counter that the competition – fossil fuels – receives incentives too and that green just wants a level playing field.

That leads to the next question: What will it take to create a level playing? Just how much do governments spend on fossil fuels anyway? Thanks to a new report by IEA, we now know the number is $557 billion worldwide as of 2008.

The number comes from IEA’s survey of the 37 countries that represent 95% of global subsidization of fossil fuels. IEA hopes to identify how subsidies artificially dampen fossil fuel pricing and encourage people to use more energy.

IEA says that phasing out fossil fuel subsides between 2011 and 2020 would:

• Cut primary global energy demand by 5.8% by 2020. This is equivalent to the current energy consumption of Japan, Korea, Australia and New Zealand combined.

• Cut global oil demand by 6.5 mb/d in 2020 – the equivalent of one third of current US oil demand.

• Reduce carbon dioxide emissions by 6.9% by 2020, equal to current emissions of France, Germany, Italy, Spain, and the UK combined.

IEA intends to set up an online database of fossil‐fuel subsidies by country, by fuel, and by year. A next good step would be a side-by-side comparison of fossil fuel and clean energy subsidies.

Many would argue that energy subsidies are required because energy is a basic need. This may be true, but incentives skew true price. Not knowing true price at best leads to poor decisions by consumers, business and government and at worst opens the door for market manipulation, as we saw with the subprime mortgage markets. Better to have transparency on all energy incentives, so that we can steer ahead with open eyes, and avoid the kind of crash we’ve seen in the financial markets.

Elisa Wood is a long-time energy writer whose work appears in many of the industry’s top magazines and newsletters. She is publisher of the Energy Efficiency Markets podcast and newsletter.

photo: blmurch