It's that time of the year again when the International Energy Authority releases its estimates of what went on in the global energy markets last year. And the headline that most seem to be leading with is that there's $550 billion a year going in subsidies to fossil FOSL -9.38% fuels and that this is restraining, holding back, the adoption of renewable energy systems. The IEA and the reports are undoubtedly correct in both assertions: however, there's a wrinkle that we should all be aware of. It's not us in the rich world that are handing out those subsidies. It is largely in the poor world and also in the oil states themselves that these subsidies are being paid out.
Here's one report on what the IEA is saying:
Fossil fuels are reaping $550 billion a year in subsidies and holding back investment in cleaner forms of energy, the International Energy Agency said.
Oil, coal and gas received more than four times the $120 billion paid out in incentives for renewables including wind, solar and biofuels, the Paris-based institution said today in its annual World Energy Outlook.
Yes, all of that is entirely true. And it's also true, as the IEA has said in the past, that we really would like to stop those subsidies to fossil fuels. On three grounds, the first that they're very inefficient, the second that they don't actually reach the poor they're aimed at and the third that removing them would take us a long way to meeting our climate change targets.
However, nothing is ever that simple: and the big point to note here is that it really isn't us in the rich countries that are subsidising fossil fuels. Back here I've a chart showing where those subsidies are actually going, from an earlier IEA report. And in this current report we're told this:
Renewable energy technologies, a critical element of the low-carbon pillar of global energy supply, are rapidly gaining ground, helped by global subsidies amounting to $120 billion in 2013.
....Fossil-fuel subsidies totalled $550 billion in 2013 – more than four-times those to renewable energy – and are holding back investment in efficiency and renewables. In the Middle East, nearly 2 mb/d of crude oil and oil products are used to generate electricity when, in the absence of subsidies, the main renewable energy technologies would be competitive with oil-fired power plants. In Saudi Arabia, the additional upfront cost of a car twice as fuel-efficient as the current average would, at present, take about 16 years to recover through lower spending on fuel: this payback period would shrink to 3 years if gasoline were not subsidised. Reforming energy subsidies is not easy and there is no single formula for success. However, as our case studies of Egypt, Indonesia and Nigeria show, clarity over the objectives and timetable for reform, careful assessment of the effects and how they can (if necessary) be mitigated, and thorough consultation and good communication at all stages of the process are essential.
There's our two numbers, the renewables subsidy and the fossil fuel one. And yes it's entirely true that we'd like to reduce that second, the fossil fuel one. Either so we can increase the renewables one because we have more money or so we can decrease it as we now longer have two policies working in opposition to each other.
