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Government burn $70 billion a year subsidizing renewables, and wild claims of “fossil fuel subsidies” debunked

Posted By Joanne Nova On September 17, 2012 @ 3:10 pm In Big-Government,Energy | Comments Disabled

When activists protest about “fossil fuel” subsidies, it is a case of extreme-wordsmithing. Like chinese-whispers, the truth gets turned 180 degrees. It takes a string of half truths stacked in a series to come up with something which is so completely counter to reality it is meaningless.

The reality is that governments around the world are paying billions each year to prop up an industry that is inefficient, uncompetitive and unproductive. It’s money that is desperately needed in health or in real medical and scientific research.

“More than US$70 billion of support is provided by governments to renewable energy production and consumption worldwide.”

[IEA (The International Energy Agency, which promotes "green energy" in it's header)]

That’s an annual figure. And the plan seems to be even more subsidies. (I thought the plan was to make renewables competitive?)

Graph of government support for renewables.

Source: IEA Key Graphs

Source: IEA Key Graphs

Could it be $200 billion?

This UN group has an even higher number. I don’t know exactly how they define “green stimulus” spending, perhaps it was a one-off:

[UNCTAD]

“Green government procurement will also be essential in the early stages of a transition to a green economy. In 2009, global green stimulus spending reached $200 billion.”

To put that in perspective, the combined profit of the largest five oil companies (BP, Conoco, Exxon, Chevron, Shell) was $140 billion.

To earn those government subsidies renewables produced about 1% of global energy, while those five companies produced 15 million barrels of oil a day.

But wait, aren’t fossil fuel subsidies even larger?

According to the IEA “Yes”, ten times larger! E’Gad. But something seems fishy about that, after all we know that every time we fill the tank at the bowser we personally subsidize the government and not the other way around. So let’s look more closely at what those subsidies mean. Everyone wants these evil fossil fuel subsidies to stop, it could provide half the answer to climate change (who knew subsidies to fuel companies were half responsible for floods, droughts, storms and sea levels rising?)

In Western nations, they mean “tax deductions” for fossil fuel companies. Where a subsidy for renewable energy is a handout from the government, a “subsidy” for fossil fuel company means the government lets them keep some of the money they earned.

Here’s how the SMH phrased it when discussing the situation in Australia:

The biggest fossil fuel incentives were in unclaimed revenue, including about $5 billion in fuel tax rebates for greenhouse-intensive industries.

More than $1.1 billion was spent on fringe benefits tax concessions for company cars.

Groups like Greenpeace and The Australian Conservation Foundation argue that really, Governments are helping fossil fuel companies far more than green ones. But while governments rewrite national economies to help “green” companies, about half of the help for fossil fuels is simply that the government didn’t take as much off them as it could. The net flow of money is still from Big-Fossil-Energy towards Big-Government. It takes a special kind of grand entitlement to call that a subsidy.

Indeed you could argue that fossil fuels subsidize the government. Exxon paid 17.6% tax (2008-1020 data). That may sound a lowish rate, but how does it compare to other companies in other sectors? If there is a “tax avoidance” issue, how is that unique to fossil fuels? Doesn’t every big company do their best? GE after all, earned $21 bn for renewables, and paid 0% tax.

National Geographic have done an excellent interactive map — here’s an image from it:

In the National Geographic Map (not here) you can

Source: National Geographic

Likewise,  IEA data highlights the governments which pander to fossil fuel power the most (the graphs were apparently courtesy of The Guardian):

 graph: green subsidies for renewable energy by country

From The Guardian originally, probably relates to non-OECD countries rather than “the top 15 economies” globally.

Source: IEA The Guardian via ClimateCodeRed

Something you might notice from these two graphs is that the biggest subsidizers of fossil fuels are not the USA, or indeed, not any of the wealthy west (which is where the renewable subsidies thrive). It’s telling that the largest fossil fuel subsidies come from places like  Iran, Russia, Saudi Arabia, China and India. Now unless governments like the Iranian, Chinese or Indian ones are listening to Greenpeace or care what the Australian Conservation Foundation say, what chance is there of “turning off those subsidies” which aren’t  “subsidies” in the normal sense of the word in any case.

There is also the point that when activists say that cutting all these subsidies would reduce CO2 emissions, what they don’t say is that the savings (if these were subsidies, and they could be “reduced”) would occur in countries like China and India. I’m sure the poor in China and India would appreciate being told by rich westerners that they should pay more for fuel.

A comment on a website by Ronald Steenblik reveals how the figure of hundreds of billions of dollars in subsidies for fossil fuels is calculated and doesn’t mean any actual taxpayer subsidy, but comes from comparing fuel prices in different countries and arguing that the cheap fuels in some countries are “subsidized” compared to the world market. How shocking is it that a country like Iran has cheap fuel?

The “fossil-fuel consumption subsidies” reported by the IEA relate only to developing and emerging economies, topped by oil-exporting and natural-gas exporting countries. The values are estimated by comparing domestic prices with world prices, and where world prices are higher, they multiply domestic consumption of the fuel concerned by the price gap. They do not directly measure taxpayer-financed subsidies, though in a few cases taxpayer-financed subsidies may be being used to artificially suppress domestic prices. Mainly, prices for fossil fuels are lower in the the main subsidizing countries because of price regulation (especially where the fuel is supplied by a state-owned enterprise) or through export taxes or other restrictions on foreign sales.

Note that the IEA does not measure any consumption subsidies in OECD (i.e., industrialized) countries, such as the United States). The only OECD member countries included in their list are Korea and Mexico.

On the other hand, most of the estimates of subsidies to renewable energy that the IEA calculates relate to those provided by OECD countries, chiefly in EU member states (such as Germany) and the United States.

So, lets compare apples with apples, not with oranges.

At the OECD, we have done a first cut estimate of budgetary support and tax expenditures relating to fossil fuels in 24 or the OECD’s 34 member countries. The value of these transfers (very few of which keep the domestic price of a fuel below the world price) was on the order of $60 billion in 2010. That’s counting transfers to producers as well as to consumers.

www.oecd.org/iea-oecd-ffss

THE OECD has a much more realistic calculation of fossil fuel subsidies, estimating that it’s about $60 bn or so, and given that that is used to produce almost all the energy we rely on, dollar for joule, it’s not much at all. The OECD identified many different mechanisms in its global inventory of estimated budgetary support and tax expenditures for fossil fuels.
 The end result is that crowds of well-meaning useful idiots roam the western world demanding that fossil fuel subsidies be stopped, when most subsidies supposedly exist in foreign lands so the protests are useless and when renewables subsidies are vastly larger and far less productive. Not to mention that the headline grabbing numbers in the West turn out to be mostly concocted from the theoretical highest “tax grabs” that western governments could have taken but didn’t. Repeat after me: Fossil fuel companies subsidize the government.
Related posts on wind and solar energy:

 

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