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Wednesday, November 10, 2010

Phasing out Fossil Fuel Subsidies Will Help, But Only Innovation Can Make Clean Energy Cheap

By Jesse Jenkins, originally at the Breakthrough Institute

Over at, Tyler Hamilton dives into the International Energy Agency's newly released forecast of global energy trends (exec sum here [pdf]) focusing on the disparity in global subsidies for renewables and fossil fuels:

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.
I applaud the IEA's call for major public investments in clean energy RD&D and deployment and certainly support the agency's calls to phase out fossil fuel subsidies -- excepting where doing so would expand the already deplorable share of the global population (about 2.4 billion) locked in energy poverty.

But while Hamilton and others focus on the disparity between total subsidies for fossil energy and renewables, the IEA figures are actually a stark reminder of the major price gap that persists between mature fossil energy sources and newer, costlier clean energy alternatives.

If renewables account for a 7% share of global energy energy demand, and receive $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 receive $312 billion in subsidies according to the IEA, for $3.76 billion per percentage share of global energy supplied.

In other words renewables receive more than double the subsidy rate per unit of energy supplied as fossil fuels.

When you consider that hydropower and biomass, which rarely require or receive subsidy, account 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.

Most renewable energy technologies are still relatively immature, emerging energy sources, facing off against entrenched, mature fossil competitors whose core technologies are many decades if not centuries old (burning coal in a boiler to make steam? That's so 19th century!). We should fully expect any emerging energy alternative to require market support policies to find a foothold in the energy market and have time to scale up and come down in price.

Yet, with the IEA forecasting that virtually all (93%) of energy demand growth over the next 25 years will come from developing nations that can ill afford massive energy subsidies, the reminders are everywhere: clean energy cannot scale to meet global energy needs if it requires ongoing, high subsidy rates.

This is why I always come back to the urgent need to make clean energy cheap, in real, unsubsidized terms.

While ending fossil energy subsidies will help level the playing field for cleaner alternatives and initial market support is needed for emerging energy alternatives, 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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