By James Kanter, The New York Times, October 23, 2011
The bankruptcy this summer of Solyndra — a solar company heavily subsidized by the U.S. government — unleashed a torrent of concern about the risks of wasting taxpayer money on renewable-energy projects.
There have been similar worries in Europe, where bountiful state support led to a boom and bust in the Spanish solar sector and where targets for some biofuels may contribute to greenhouse emissions.
But what are the effects of subsidies that continue to flow to fossil fuels?
Two years ago, in Pittsburgh, the Group of 20 industrialized and developing nations acknowledged that many of these subsidies were wasteful, impeding investment in clean energy and undermining efforts to deal with climate change, and they pledged to step up efforts to get rid of them.
These subsidies are fiendishly difficult to dismantle because of the political risks involved.
In December, Bolivia had to rescind fuel price increases less than a week after announcing them, after violent protests. Early this year, Iran managed to institute sweeping changes, but only after overcoming major obstacles.
In the developed world, some of the beneficiaries include French taxi drivers, who receive an annual rebate on diesel and gasoline; British householders, who pay a reduced value-added tax for heat and power; and oil and natural gas companies in Alaska, which receive tax credits to offset the cost of drilling and exploration.
The Organization for Economic Cooperation and Development, a group in Paris that advises mostly high-income nations on their economies, said this month that these supports were worth as much as $75 billion each year in 24 of its 34 member countries.
Ángel Gurría, the secretary general of the O.E.C.D., did not specify where cuts should be made. But he said the current drive to tighten budgets provided the ideal opportunity to trim the fat. “There are very few quick wins” when looking for spending cuts, but “one of them is the reform of fossil fuel subsidies,” he said.
Making comparisons among countries is difficult, because governments often do not provide complete information. For example, many developing and emerging nations do not report support to fossil fuel producers.
What can be measured are subsidies to consumers in the form of cheap oil, natural gas and electricity.
Egypt, Libya and Venezuela were among countries that kept the costs of fuel at less than half world market prices last year, according to a report this month from the International Energy Agency, which is part of the O.E.C.D. and advises member countries on energy policy.
In Saudi Arabia, low energy prices represented a subsidy of $1,587 for each citizen, according to the I.E.A.
All told, this form of subsidy rose $109 billion to reach $409 billion last year, as governments tried to shield citizens from pricier fuels on world markets, the I.E.A. said. Under current trends, that sum will hit $660 billion by the end of the decade, it said.
Mr. Gurría said rolling back these consumption subsidies could reduce greenhouse gas emissions 6 percent in 2050 compared with business as usual.
The executive director of the I.E.A., Maria van der Hoeven, said this month that these subsidies skewed the playing field for renewable technologies by encouraging people to keep using large quantities of fossil fuels and diminishing the competitiveness of alternatives.
To be sure, most forms of renewable energy still are more heavily subsidized than fossil fuels based on each unit of energy produced.
But, over all, subsidies for fossil fuels dwarf the amounts governments spend on sources like wind and solar energy and biofuels. These renewable sources received $57 billion in 2009, according to the most recent figure from the I.E.A.
Moreover, citizens and companies that rely on fossil fuels usually do not pay the full cost of resulting environmental problems likeoil spills, sludge from coal mines and greenhouse gases, and for health problems from polluted air.
Estimates of the cost of these effects — or “externalities” in the ungainly jargon of economists — vary.
One study published in August in The American Economic Review and written by economists from Yale University in Connecticut and Middlebury College in Vermont found that air pollution from coal-fired power plants cost the United States more in health damage than those plants contributed to the U.S. economy.
Yet another form of implicit subsidy identified by environmentalists and by some economists is the benefits that flow to another form of low-carbon power — nuclear energy.
Electricity ratepayers and taxpayers have long helped to shoulder the costs of constructing reactors, uranium enrichment and waste management, according to these experts. Citizens also implicitly have covered the costs of any major accident, because utility companies would never be able to pay for the damage themselves, they said.
Since the disaster at the Fukushima Daiichi plant in Japan in March, when an earthquake and tsunami wrecked reactors and released dangerous contaminants, it has become even clearer that current levels of private insurance are inadequate, said Doug Koplow, the founder of Earth Track, a group that studies global energy subsidies.
Mr. Koplow pointed out that liability estimates for the Japanese disaster were between $47 billion and $130 billion, and that Japanese taxpayers would pay most of that.
Despite exhortations of international officials, supports for fossil fuels seem unlikely to disappear any time soon.
In the Middle East and North Africa, where subsidies for oil and natural gas are among the most generous in the world, popular uprisings have swept aside old regimes. But new leaders seeking acceptance may be as hesitant as their predecessors to cut benefits that would raise the cost of living.
Meanwhile, in the developed world, the authorities are developing new supports aimed at bolstering energy security and cutting pollution that could, in turn, keep up demand for fossil fuels.
The European Union is helping utilities that burn coal to cope with emissions restrictions by offering them billions of dollars to develop ways of storing carbon dioxide underground. And in the United States, Congress is considering a bill that would offer tax incentives to encourage the manufacture of heavy-duty trucks powered by natural gas.