Counting the Costs: Fossil Fuel Subsidies Over 10 Times Those of Renewables

A new report by Bloomberg New Energy Finance shows that fossil fuels garner over 10 times the subsidies renewable energy does.

One of the biggest concerns regarding a transition to renewable energy is the potential for higher costs to be passed on to the consumer.

Not only is the technology (relatively) expensive, so is the implementation and maintenance. At least when compared directly to fossil fuels. However, the comparison does not always take into account the amount of federal (read: taxpayer) aid provided to fossil fuel companies in the form of subsidies.

These subsidies are crucial in keeping energy costs low enough to prevent consumer revolt, but also to make energy viable for the market.

And fossil fuels get a lot of subsidized funding. Anywhere between 10-13 times as much as those available for renewable energy.

Some Stats:

In 2009 governments provided subsidies worth between US$43 and US$46 billion to renewable energy and biofuel industries. This included support through feed-in tariffs, renewable energy credits, tax credits, cash grants and other direct subsidies.

In contrast, estimates from the International Energy Agency (IEA) released in June showed that US$557 billion was spent by governments during 2008 to subsidize the fossil fuel industry.

This is a big deal -- one that seems to indicate oil is costing tax payers more than renewable energy -- at least at first glance. And the so-called lower costs of fossil fuels are often keeping renewable energy investors at bay.

Investor Reluctance:

According to Michael Liebreich, CEO of Bloomberg New Energy Finance, part of the problem is misapprehension on the part of investors.

"One of the reasons the clean energy sector is starved of funding is because mainstream investors worry that renewable energy only works with direct government support," he said.

"Setting aside the fact that in many cases clean energy competes on its own merits – for instance in the case of well-situated wind farms and Brazilian sugarcane ethanol – this analysis shows that the global direct subsidy for fossil fuels is around 10 times the subsidy for renewables."

Times Are Changing:

The gap is expected to narrow over the next few years, most notably as large-scale renewable energy investments come to the forefront.

Bloomberg's report shows sizable renewable energy subsidy schemes emerging.

The US provided $18.2 billion in renewable energy and biofuel subsidies in 2009, and China offered direct subsidies worth US$2 billion alongside low-interest loans from state banks. Germany provided about US$19.5 billion worth of support through its widely adopted feed-in tariff scheme.

All this points in the right direction, and puts the pressure on G20 countries to remain accountable to their recent pledge [pdf] of phasing out fossil fuel subsidies.

Learn more about Green Investment on eBoom's Finance Learning Page.