Friday, September 7, 2012

Fossil fuels receive more subsidies than renewables

The fossil fuel lobbies like to point to the fact that renewable energy sources are being heavily subsidized. Though this has been pretty much true in the last decade or so, global fossil fuel subsidies still get most of the money, with estimates from the WorldWatch institute being at between $775 billion and more than $1 trillion in 2012, compared to just $66 billion for renewable energy sources. This really shouldn’t surprise us because fossil fuel have benefited from massive governmental backing worldwide for hundreds of years.

From the general perspective the total subsidies for renewable energy are significantly lower than those for fossil fuels, but if we focus to look at things from the kilowatt per hour equation we can see that renewable energy subsidies are currently between 1.7¢ and 15¢ per kilowatt-hour (kWh), while subsidies for fossil fuels are at around 0.1-0.7¢ per kWh.
Subsidies for fossil fuels are huge.
The difference in this kilowatt per hour equation could soon change because many energy analysts expect decrease in subsidy costs for renewables as renewable energy technologies are becoming increasingly efficient while on the other hand the prices of wholesale electricity and transport fuels continue to rise further.

The latest report from the U.S. National Academy of Sciences says that fossil fuel subsidies cost the United States $120 billion in pollution and related health care costs every year. These hidden costs are however still not reflected in fossil fuel prices and this is what currently gives fossil fuels edge over renewables in terms of total costs.
The U.S. president Obama promised to shift official support from fossil fuels to renewables in order for America to make a switch to clean energy economy and enter global clean energy race from a favorable position. This policy would not only help reduce the level of greenhouse gas emissions, but would create prerequisites for long term economic growth, as well as reducing U.S. heavy dependence on foreign fuel import.

The International Energy Agency (IEA) estimates that if fossil fuel subsidies were phased out by 2020 this would cause reduction in oil demand by 3.7 million barrels per day, natural gas demand by 330 billion cubic meters, and coal demand by 230 million tons of coal. 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.

Without fossil fuel subsidies carbon dioxide emissions would be reduced by 4.7 percent in 2020 and by 5.8 percent in 2035. This would be of great benefit to reduce negative consequences of ongoing climate change phenomenon.

No subsidies for fossil fuels would also level the playing field for renewables and allow countries to reduce support for clean energy sources as well.

While some say that no subsidies for fossil fuels is excellent idea others argue that reducing subsidies would disproportionately affect the poor, developing countries. The only real truth in the whole story is that fossil fuel subsidies still heavily outweigh support for renewable energy which makes transition to renewable energy sources lot slower.

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