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Subsidies for renewables: $57 billion; subsidies for fossil fuels: $312 billion

Tyler Hamilton's picture

Tyler Hamilton is a business columnist for the Toronto Star, Canada's largest daily newspaper. In addition to this Clean Break blog, Tyler writes a weekly column of the same name that...

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The International Energy Agency put out its annual World Energy Outlook today and urges strong and sustained government support for the deployment of renewable energy. The agency pegs 2009 subsidies for renewables at $57 billion and calls for that to increase to $205 billion by 2035. “The share of modern renewable energy sources, including sustainable hydro, wind, solar, geothermal, modern biomass and marine energy, in global primary energy use triples between 2008 and 2035 and their combined share of total primary energy demand increases from 7 per cent to 14 per cent,” according to the agency. Fossil fuel subsidies stood at $312 billion in 2009 and the agency urged that they be eliminated to accelerate the transition to renewables.

But even this won’t hold global temperature increases to below 2 degrees C, it concedes. It expects that CO2 emissions will grow to about 650 parts per million before stabilizing, resulting in a temperature increase of more than 3.5 degrees C. Not good, as we need to keep emissions to 450 PPM or below to keep temperature increases manageable. That means a far more rapid phase-out of fossil-fuel subsidies and more aggressive support of renewables. Ideally, oil demand would peak just before 2020 and decline by 10 per cent by 2035. Coal and, yes, natural gas demand would also peak before 2020 under this scenario. Unlikely, sure, but it’s what it will take. Meanwhile, we need to see renewables and nuclear climb to a combined share of 38 per cent of primary energy supply by 2035.

“The message here is clear,” said Nobuo Tanaka, executive director of the IEA during a London press conference. “We must act now to ensure that climate commitments are interpreted in the strongest way possible and that much stronger commitments are adopted and taken up after 2020, if not before. Otherwise, the 2 degrees C goal could be out of reach for good.”

You can read an overview of the report here, and get a lengthier executive summary here. Bloomberg News has a report here.

Environmental groups such as Greenpeace generally applauded the IEA for recognizing the rising importance of renewables, but they were still critical of the IEA for, among other things, putting too much hope in carbon capture and nuclear technologies. “The IEA´s assumption, that after 2020 98 per cent of new coal power plants will be built with CCS capability, is light years away from reality. Increasing amounts of CCS projects have been cancelled due to run-away costs and the lack of public support,” according to Sven Teske, renewable energy director of Greenpeace International.

I would agree that CCS is a dog, and subsidizing such technologies is akin to subsidizing fossil fuels. I’m in less agreement with Greenpeace on the role that nuclear can and should play. I don’t like nuclear, but at the same time I recognize that in high-growth developing countries such as China it may be crucial to keeping global emissions under control. In other words, if building a nuke plant means eliminating the need to build a few coal plants, then that’s a good thing. It’s a bitter pill we may have to swallow, at least until we get mature and competitive energy storage technologies that can give renewables a baseload profile. That said, I don’t believe we can achieve the kind of nuclear buildout envisioned by the IEA, which is akin to building a new reactor every month until 2035, according to Greenpeace. Fat chance of that happening. Renewables, on the other hand, can be deployed much more rapidly and strategically than nuclear.

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Geoffrey Styles's picture
Geoffrey Styles on Nov 9, 2010

Tyler,

Unless it’s integral to a specific renewable energy technology (e.g., molten salts or other thermal storage for CSP) low-cost energy storage is likely to benefit mainly the lowest-cost generating technology in any market.  In some places that might be off-peak wind, but in many others it’s probably either nuclear or coal.  It’s hard to envision it being PV. So cheap storage could have some quite counter-intuitive impacts on emissions and the growth of renewables, depending on how it evolves and where it is implemented. 

It’s also worth noting that the IEA report makes it very clear that the $312 B in subsidies identified for fossil fuels are consumption subsidies, mainly in the form of direct subsidies and market controls in developing countries.  Phasing them out makes a lot of sense, from both an energy and emissions perspective, though it will have a significant impact on developing country populations.  These subsidies are also quite different in scale, intent and effect from the much smaller energy production incentives (Sec. 199, depletion, etc.) offered in the US tax code.

Mike V's picture
Mike V on Nov 9, 2010

Why do you believe that a reactor build rate of 12 per year is unlikely?

David MacKay in his book “Sustainable Energy without the hot air” calculates that the historical maximum rate is 30 reactor per year (see page 171). His book is available online at: www.inference.phy.cam.ac.uk/withouthotair/

Bill Woods's picture
Bill Woods on Nov 10, 2010

I don’t believe we can achieve the kind of nuclear buildout envisioned by the IEA, which is akin to building a new reactor every month until 2035, according to Greenpeace. Fat chance of that happening.

Why not? It’s been done before, in 1970-90: www.iaea.org/dbpage/images/age.jpg

Renewables, on the other hand, can be deployed much more rapidly and strategically than nuclear.

Nuclear and geothermal can replace coal in providing baseload power; wind and solar not so much — though they can replace gas in providing peakload power.

Bill Woods's picture
Bill Woods on Nov 10, 2010

[duplicate post]

Jesse Jenkins's picture
Jesse Jenkins on Nov 10, 2010

While I certainly support the IEA’s calls to phase out fossil fuel subsidies — excepting where those would expand the already deplorable share of the global population (about 2.4 billion) locked in energy poverty — the IEA figures on energy subsidies are actually a stark reminder of the major cost gap that persists between fossil energy and costlier clean energy alternatives.

If renewables account for a 7% share of global energy energy demand, and recieve $57 billion in subsidies, that’s $8.14 billion for each percentage share of global demand. In contrast, fossil fuels supply about 83% of the global energy mix (nuclear accounts for the remaining 6%, according to the IEA) and recieve $312 billion in subsidies, for $3.76 billion per percentage share of global energy supplied.

In other words renewables recieve more than double the subsidy rate per unit of energy supplied as fossil fuels. When you consider that hydropower, which rarely requires or recieves subsidy, accounts for the vast share of global renewable energy production, the relative subsidy rate for wind, solar and other renewables per unit of energy produced is much higher.

This is why I always come back to the urgent need to make clean energy cheap, in real, unsubsidized terms. Ending fossil energy subsidies will help level the playing field, but only real innovation to drive down price and improve performance for a full suite of clean energy technologies can ensure that a meaningful share of global energy demand can be supplied by low-carbon alternatives to fossil fuels.

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