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POLICY

Renewable energy vs fossil fuel subsidy comparison: A world map

Its a traditionally held view that renewable energy is not cost effective without considerable government subsidies. It is posited that fossil fuels are far less expensive, and although not carrying the same price tag we accept that they come with environmental and health risks associated with them. However, in recent years, this argument has changed. Renewable energy in most parts of the world is now cheaper than fossil fuels, without subsidies. Moreover, fossil fuels are subsidised by 4-5 times as much as renewable energy. In most parts of the world, fossil fuels are subsidised by double the amount paid at the pump. Where issues still exist when contemplating grid integration, or the diurnal cycle of solar, it is now a fundamentally different game when new energy production is constantly reducing in price, and carries no health or environmental risks.

According to a joint report by the Overseas Development Institute and Oil Change International, fossil fuels are subsidised by approximately $775 billion annually around the world, with an additional $88 billion going towards exploration – in stark contrast to the $101 billion in renewable subsidies issued by governments in 2013. Not only is this a vast amount of money that is not equally distributed around the economy, it is also an inherently flawed logic to continue to support an industry that threatens the most valuable asset civilisation possesses – a stable environment on which we have depended for many thousands of years. To continue to fund fossil fuels highlights an alarming disconnect between what governments say they want to achieve and precisely how they are engaged in the activity of achieving these objectives. That so many lobby groups and think-tanks funded by the oil and gas industry exist is not helpful and it’s an unfortunate reality that there is simply too much misinformation for governments to be guided by sound advice and make the kind of progressive policy changes that are required. The change from a country having an economic model based on volatile fossil fuel prices to the more technically complicated world of renewable energy may involve particular hurdles to be crossed, but the case must be made for the many advantages of doing so.

Echoing the same sentiments expressed by the Organisation for Economic Co-operation and Development (OECD) and the World Bank, the G7 met in Japan and made the historic announcement that they will phase out fossil fuel subsidies by 2025, following on from a similar statement made in 2009, although this affirmation does come with some caveats, however. First of all, the ban applies only to ‘inefficient’ subsidies, provoking concern by some groups. The cause for alarm relates to the fact that it is very difficult to discern precisely what constitutes a subsidy, a tax break or some other policy instrument when dealing with the various types of fuels, sources and modes of consumption.  In addition to this there are the many debt issues relating to ongoing conflicts in the Persian Gulf, among other things, which the group Oil Change International categorises as a fossil fuel externality. The group, backed in their findings by the IMF and independent UK watchdog ODI, state that G20 support for fossil fuel production only comes to $444 billion between direct national subsidies, domestic and international finance, and state-owned enterprise investment.

Furthermore, a recent IMF analysis of the figures sheds light on the fact that while energy subsidies to fossil fuels may create a superficial level of security in the energy market and limited economic benefits, the true cost of these subsidies exceeds the benefits they provide when looked at in totality. This argument is never so obvious as when we look at the emergence of the ‘Oil Curse’, as it is known. Countries that have very large reserves of oil are often the poorest countries on the planet. Oil can be seen to form dangerous chasms within society as money is distributed to a very small group of people, fueling corruption and becoming a proponent of conflict.

Central to the IMF report is the idea of ‘post-tax subsidies’, which is a term they use to describe the cost of localised health problems as well as externalities such as crop failure and flooding caused by global warming. The total cost of these externalities they put at $5.3 trillion. What is not mentioned is the overall shift from an agrarian existence to modern urban life that fossil fuels have afforded, and what is striking are the costs that this transition will bring in terms of environmental damage and other effects.

 

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