Energy resources vary widely in terms of their capital intensity, reliance on centralized networks, environmental impacts, and energy security profiles. Although the policies of greatest import to a particular energy option may differ, their aggregate impact is significant. Subsidies to conventional fuels can slow research into emerging technologies, thereby delaying their commercialization. Subsidies and exemptions to polluting fuels reduce the incentive to develop and deploy cleaner alternatives.
A lack of access to modern energy services continues to be a major contributing factor to poverty and human suffering throughout the world. The International Energy Agency estimates 1.3 billion people have no access to electricity, most of whom are located in rural areas. Roughly 2.6 billion people have no access to clean cooking fuels; too often the search for biomass cooking fuels puts the poor, particularly women, at great safety risk as well.
Government subsidies to energy producers, transporters, and consumers are widespread throughout the world and represent a large public investment in the energy sector. In theory, this investment could be funding a variety of social goals such as providing the poor with access to basic energy services and addressing common environmental problems linked to energy extraction and consumption.
Although some subsidies do address these types of concerns, most either do not, or do not do so effectively.
The Inter-American Development Bank (IDB) is embarking on a major work program to identify and assess fossil fuel subsidies throughout Latin America and the Carribean. I had the privilege of presenting a number of ideas on how to leverage their effort during an expert meeting on the topic a few weeks back. The slides from my presentation can be viewed here.
Growing consensus that fossil fuel subsidies need to go
This study (main report - data annexes) led by IEEP and carried out in collaboration with IVM, Ecologic Institute and VITO aims to support the European Commission in implementing the call in the Resource Efficiency Roadmap to phase out EHS by 2020. The study identifies a number of existing EHS in EU Member States across a range of environmental sectors and issues.
This report provides an overview of energy subsidies in the UK, starting with an overview of the basic economics, then identifying the scale of subsidies in the UK, and finally comparing the UK position with other countries.
Ideally, a thorough study on energy subsidies would track, for each branch of the energy system, total income arising through energy taxes, and net off all public payments made for infrastructure, services (including regulatory functions, system balancing etc.) as well as the direct subsidies provided through price support mechanisms.
Energy subsidies have wide-ranging economic consequences. While aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources. Most subsidy benefits are captured by higher-income households, reinforcing inequality.
Presentation at the 124th Annual Meeting of the National Association of Regulatory Utility Commissioners for a panel entitled "How Should Subsidies be Crafted to Ensure Usefulness as an Effective Tool to Achieve Energy Policy Objectives." The presentation discussed the range of energy subsidies, commonly ignored market supports to conventional fuels, and ways to improve subsidy efficiency. Other presentations on the panel can be accessed here.
Part 2 of my review of energy subsidies and the Romney campaign is a bit long for a blog posting. Thus, it has been uploaded as a PDF instead, and can be accessed here. Issues covered include conflicts between the private equity world view and good national policy; how appropriate adjustments to Romney's subsidy baseline alter the conclusions he drew from the figures, and a discussion of missing subsidies in a number of key areas: tax-exempt oil and gas master limited partnership
Despite a stated commitment to using market forces, the Romney campaign is turning a blind eye to large and distortionary subsidies to conventional fuels. This review highlights problems with how Romney has framed the energy subsidy problem and highlights important subsidies to fossil fuels that he has ignored.