Fossil fuel and renewable energy subsidies on the rise

Total subsidies for renewable energy stood at $66bn in 2010, but are still dwarfed by the total value of global fossil fuel subsidies estimated at between $775bn and more than $1trn in 2012, according to research by the Washington-based Worldwatch Institute.

Although the total subsidies for renewable energy are significantly lower than those for fossil fuels, they are higher per kilowatt-hour if externalities are not included in the calculations, write report authors from Worldwatch’s Climate and Energy team. 

Estimates based on 2009 energy production numbers placed renewable energy subsidies between 1.7c and 15c per kilowatt-hour (kWh), while subsidies for fossil fuels were estimated at around 0.1-0.7c per kWh.

Unit subsidy costs for renewables are expected to decrease as technologies become more efficient and the prices of wholesale electricity and transport fuels rise.

The production and consumption of fossil fuels add costs to society in the form of detrimental impacts on resource availability, the environment, and human health. The US National Academy of Sciences estimates that fossil fuel subsidies cost the United States $120bn in pollution and related health care costs every year.

But these costs are not reflected in fossil fuel prices. “These so-called hidden costs, or externalities, are in fact very real costs to our societies that are not picked up by the polluter and beneficiary of production but by all taxpayers,” said Alexander Ochs, Director of Worldwatch’s Climate and Energy program and report co-author.

Shifting official support from fossil fuels to renewables is essential for decarbonizing the global energy system. Such a shift could help create a triple win for national economies by reducing global greenhouse gas emissions, generating long term economic growth, and reducing dependence on energy imports.

According to projections by the International Energy Agency (IEA), if fossil fuel subsidies were phased out by 2020, global energy consumption would be reduced by 3.9% that year compared with having subsidy rates unchanged. Oil demand would be reduced by 3.7 million barrels per day, natural gas demand would be cut by 330 billion cubic meters, and coal demand would drop by 230 million tons of coal.



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