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Worldwatch: Fossil fuel subsidies continue to outweigh those for renewable energy; international pledges on reform unfulfilled

Worldwatch
Estimated consumption subsidies, industrial and developing countries, fossil fuels and renewables. Source: Worldwatch. Click to enlarge.

Fossil fuel subsidies continue to far outweigh support for renewable energy, according to new research conducted for the Worldwatch Institute’s Vital Signs Online service. Although independent reporting on these subsidies has increased, global efforts to move forward with subsidy reform have been hindered by a variety of causes, leaving international pledges unfulfilled.

Total subsidies for renewable energy stood at $66 billion in 2010 (a 10% increase from the year before); the total value of global fossil fuel subsidies is estimated at between $775 billion and more than $1 trillion in 2012, Two thirds of the renewable energy subsidies went to renewable electricity resources and the remaining third to biofuels.

GSI: Fuel Subsidies in India
In 2011–12 India’s subsidies and under-recoveries for fuel totalled INR1.4 trillion (US$27.7 billion). Total subsidy expenditure (including for fertilizer and food) was up by 27% on the previous year, significantly contributing to the rise in fiscal deficit of 1.3% of the GDP for 2011–12, according to the International Institute for Sustainable Development’s Global Subsidies Initiative (GSI).
The Government has announced its goal of reducing total subsidy expenditure to 2% of GDP in 2012-13, with further reductions down to 1.75% in following years. However, reform has been hampered by concerns over how higher fuel prices will affect the broader economy—potentially disrupting key sectors like transport, industry and agriculture—and the ability of poor citizens to cope with higher prices.
GSI, in collaboration with the National Institute for Public Finance and Policy (NIPFP) and The Energy Resource Institute (TERI), released three new reports on India’s fuel subsidies and the options and recommendations for reform.
As an example, for diesel pricing the short-term recommendation is to progressively decontrol diesel prices by eliminating under-recovery over a period of around one year. For the medium term, the organizations suggest refining and implementing options investigated over the short term. For the long term, the recommendation is to liberalize diesel pricing.

Although the total subsidies for renewable energy are significantly lower than those for fossil fuels, they are higher on a per kWh basis (without including externalities). Estimates based on 2009 energy production numbers placed renewable energy subsidies between 1.7¢ and 15¢ per kWh, while subsidies for fossil fuels were estimated at around 0.1–0.7¢ 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.

Other findings from the Worldwatch report include:

  • Global production subsidies total an estimated $100 billion per year, and consumption subsidies add to roughly $675 billion.

  • In 2010, developing countries spent roughly $193 billion, or 47% of all fossil fuel consumption subsidies, on oil while industrial countries spent roughly $28 billion.

  • Since 2007, roughly 80% of spending on consumption subsidies occurred in countries that are net exporters of fossil fuels.

The US National Academy of Sciences estimates that fossil fuel subsidies cost the United States $120 billion in pollution and related health care costs every year. But these hidden costs (externalities) are not reflected in fossil fuel prices.

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.

The effects of the subsidy removal would extend beyond the end of the phaseout period. By 2035, oil demand would decrease by 4%, natural gas by 9.9%, and coal demand by 5.3%, compared with the baseline projection. Overall, carbon dioxide emissions would be reduced by 4.7% in 2020 and 5.8% in 2035.

The IEA’s chief economist recently estimated that eliminating all subsidies in 2012 for coal, gas, and oil could save as much as Germany’s annual greenhouse gas emissions each year by 2015, while the emission savings over the next decade might be enough to cover half of the carbon savings needed to stop dangerous levels of climate change.

Progress toward a complete phaseout, however, has been minimal. The 2009 pledge by the Group of 20 major economies to reduce “inefficient fossil fuel subsidies” has been left vague and unfulfilled, the Worldwatch Institute notes. The lack of a definition has left countries to make their own determination if their subsidies are inefficient. As of August 2012, G20 countries had not taken any substantial action in response to the pledge—six members opted out of reporting altogether (an increase from two in 2010), and no country has yet initiated a subsidy reform in response to the pledge. Furthermore, there continues to be a large gap between self-reported statistics and independent estimates in some countries.

Comments

Herm

Rich countries subsidize renewable energy (often the consumer pays high $$ for electricity), poor countries subsidize fuel prices.. those darn poor people want cheap gasoline for their scooters!.
Otherwise they will riot.

HarveyD

This is a real on-going shame. Fossil fuel subsidized at the rate of over $1T/year while alternative cleaner energy sources get on $66B/year or 15 times less. It should be the other way around. It is absurd and ridiculous to use extremely large public $$$$ to support very rich high profit fossil fuel operators.

The same $1T/year could build many new hydro power plants on unharnessed rivers, many thousands wind turbines, many small and large solar power plants and other clean power generating facilities to reduce GHG and electrify msot transportation modes.

Too many leaders and politicians are overly influenced by fossil fuel lobbies. Will the next generations put an end to it?

Brotherkenny4


So basically we could trim a nearly a trillion dollars from government budgets world wide and the impact on the consumer might be as little as 0.1 cents per kWh (so for a $100 monthly electric bill at 11 cent per kWh, the savings is 91 cents, or about 11 dollars per year, the .7 cents per kWh would result in 77 dollars per year). Another way to say it is that the trillion given to fossil fuel does hardly anything for the consumer. Actually, it probably just barely pays for the lobbists and their costs (donations). Seems like tax payer subsidization of the political process that protects the fossil fuel industry.

www.google.com/accounts/o8/id?id=AItOawnPkfBat9GaJ993242yUohKZi1Yu2NGx94

A better way of calculating "subsidies" would be dollar per effective gigawatt provided. Looking at it that way, wind and solar are a huge ripoff and taxpayers get a great deal from fossil fuels.

Since wind and solar are unpredictable they cannot be depended upon to provide any particular quantity of energy on any particular day. Since they are more expensive they drive up costs for consumers.

They are old technologies to boot, older than man. Why should they be pampered at the public teat?

And what exactly are these "subsidies" you keep talking about? Fossil fuels pay big taxes are a net fiscal benefit. Wind and solar suck up resources faster than a cobra strike.

Support for wind and solar is not based upon benefit but upon sentimental attachment. Get over it!

HarveyD

How about NO subsidies, NO grants, No tax credits, No hand outs, No gifts, No tax breaks, etc. Make them ALL illegal. That would get rid of many lobbies and other politician favor buyers.

The country could offer Industries Loans at regular or preferred rates in a similar way that Pension and Investment Funds do.

Stop giving away people (99%) money to the (1%) and going deeper and deeper in debt.

NorthernPiker

PV solar accounts for about 0.04% of the electricity generated in the US. So, a 10¢/kWh subsidy for PV solar increases the consumer’s average cost of electricity by a decidedly insignificant 4 milli-cents per kWh. In ten years, solar will account for about 0.5% of the electricity generated but at a cost that is less than the grid cost. Here are the numbers.

Residential US electricity costs 12.0¢/kWh and solar 22¢/kWh. In ten years, the residential electricity rate would be 14.6¢/kWh based on its historic (1990 – 2010) 2 % annual increase and the cost of solar would be 11¢/kWh, based on a 7 % annual decrease (8% for modules and 5% for BOS), respectively. At these prices, solar would cost 3.6¢/kWh less than other grid electricity, which would reduce the residential consumer’s average cost by 18 milli-cents per kWh, a pretty good return on investment, er subsidy. At 20 years out, ....

Perhaps, someone can do a similar analysis for wind.

Kit P

“A better way of calculating "subsidies" ”

Yes, indeed! I was at a public meeting when some wack job said the utility was a getting $15 million a year tax subsidy and that the county commissioners were corrupt. One of the county commissioners replied. !00% of zero is zero. The existing power plants pay $15 million/year. The new plant will pay$15 million/year until the old plants shutdown and then start paying $30 million/year. The county has low property taxes and good schools.

As far as corruption, the county commissioner accepted no campaign contributions. It is not hard to get reelected when the voters know you are honest and you do a good job. Low taxes good schools!

A D

@
by: www.google.com/accounts/o8/id?id=AItOawnPkfBat9GaJ993242yUohKZi1Yu2NGx94 | August 22, 2012 at 08:01 AM

Nice post, come back often.

Wind and solar are not very efficient because it don't match the impedance of what it is plug too.

Engineer-Poet
Wind and solar are not very efficient because it don't match the impedance of what it is plug too.
Ridiculous misconceptions AND broken grammar!

Comic relief, indeed.

globi

This study doesn't include the tax-payer paid military expenditures spent to protect the fossil fuel interests in the middle east.
Besides, renewables also create local jobs, reduce emissions, reduce dependence on imported fossil fuels and also hedge against their high price volatility and inflation as do efficiency measures.

HarveyD

Something has to change.

The country cannot survive with $1T/year in subsidies, tax credits, tax breaks, hand outs, unfair taxation, 1001 tax loop holes, exaggerated wealth disparity between to 3% and the 97% etc etc.

The current extended economic crisis is one of the first bump in the road. The time has arrived to take effective and fair (not always popular) corrective actions. One of our new politician is proposing 94 ways to fix growing deficits and industries growing reliance on subsidies. He may be elected next month.

Aaron Turpen

How do they define "subsidy?" Most "fossil fuel subsidies" in previous studies include tax breaks for things like paying employees, covering health care insurance, and other NORMAL BUSINESS PRACTICES that often lead to tax breaks. Sorry, that's not a "subsidy."

Given that fossil fuels drive our economy and provide the vast majority of our energy, I don't see how dreamy and unproven "green" sources qualify as replacements. Wind, solar, etc. CANNOT REPLACE FOSSIL FUEL. That's proven fact, not Big Oil propaganda.

Engineer-Poet

The "green" stuff can't, but nuclear energy can.

That's the elephant in the room.

Roger Pham

@Aaron Turpen,
You said: "Wind, solar, etc. CANNOT REPLACE FOSSIL FUEL. That's proven fact, not Big Oil propaganda."

You are wrong!!! Wind and solar energy are increasingly replacing fossil fuels. That's a proven fact!!!

The more solar and wind electricity is employed, the less fossil fuel will need to be burned. Siemens of Germany is coming out with very fast response steam turbine with the intention to ramp up quickly to match the delivery of renewable energy. With even higher penetration of renewable energy, excess electricity output will be used to make H2 to be stored for use in CCGT or CHP FC home based units when renewable energy can't deliver. The day will come when no fossil fuel will be necessary. Excess solar and wind electricity can generate H2 to be combined with waste biomass pyrolysis to make synthetic methane and hydrocarbon that is completely carbon-neutral. We currently have all the technologies required to be completely fossil-fuel free and carbon-free or carbon-neutral. Future cars can run on battery electricity, H2, synthetic methane and synthetic liquid hydrocarbon. Planes can fly on synthetic liquid hydrocarbon while ships can run on liquefied synthetic methane or even LH2.

It is the fossil-fuel lobby that kept saying that what you are saying. Just get out a calculator and get some factual numbers and start doing the math, and you'll see how easy it will be for the world's economy to thrive entirely on renewable energy. Don't listen to anyone nor to any propaganda. Just do the math yourself. If you can't, let me know and I will show you how!

We will immediately solve the world-wide unemployment problem when we (entire humanity) will switch to 100% renewable energy economy.

Engineer-Poet

Germany is replacing carbon-free nuclear power with a combination of wind, solar and lignite.  This is a huge step backward for both sustainability and the environment.

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