On Monday, the Wall Street Journal’s Kate Gordon published an article titled, “Why Renewable Energy Still Needs Subsidies.” In her post, Gordon discusses how many world governments are questioning their continued subsidization of green energy companies. Gordon notes that this shift in perspective is becoming more and more apparent.
Earlier this month the United Kingdom decided to further cut financial support for their feed-in tariff program.
Under the program, anyone who fed energy into the country’s electricity grid using renewable energy-based technology would be paid a fee for each kWh. However, since the program began in 2010, on an almost yearly basis the UK government has continuously cut payout rates to energy producers, and to tighten restrictions on what types of energy generation systems qualified.
In the United States, green energy companies have had more success in obtaining and preserving subsidies. In February the Obama Administration announced that it would ask for $48 billion in tax incentives for green energy companies. However, support has been far from unanimous in that country, and many subsidies have come and gone and come again as they have been renewed (or not) on an annual or biannual basis.
Canada’s federal and provincial subsidies for green energy have also been similarly controversial at times, and in some cases have been cut or removed entirely.
For instance, while running for reelection in 2014, former Ontario Progressive Conservative party leader Tim Hudak proposed what he called the “Million Jobs Act,” which would have suspended the green energy tariff program (which is somewhat similar to the UK’s) that Ontario had put in place via the Green Energy Act of 2009. While some of the subsidies survived the election, tariffs for larger energy producers were ended. Government support for green energy has also faltered elsewhere in Canada. In August, the province of Nova Scotia announced that it would end its own tariff program for budgetary reasons.
The drop in support seems to be due, in part, to the dropping price of green energy.
The WSJ article mentions that Lazard, a financial advisory and asset management company, recently published an analysis of the comparative costs of electricity produced by differing means, and found that many green technologies are rapidly reaching parity with fossil fuels. As Gordon puts it: “If renewable energy is getting so cheap, why do we still need policies and subsidies to support it?”
Gordon’s answer is a succinct one:
Green energy is still at a massive disadvantage, compared to the fossil fuel industry.
Though the production of electricity from renewable sources is becoming cheaper, the infrastructure within which green companies are operating is one tailored to the strengths of fossil fuels. As Gordon points out, “These massive infrastructure projects were built up with public-sector support, including tax credits, low-cost loans, and outright grants from the [American] federal government.” One example depicted in the article is the development of electric vehicles. While the world is awash with fuel stations, finding an EV charging station is a small miracle. Until EV stations become nearly as ubiquitous as gas stations–something that certainly won’t happen without significant assistance from world governments–companies developing electric cars will be at a significant disadvantage.
In addition, fossil fuel companies still receive massive amounts of government handouts. The American government pays out more than US$700 billion per year to fossil fuel companies. And despite pledging to reduce subsidies for fossil fuels in 2009, G20 countries have actually increased such subsidies, currently averaging more than $US1000 per citizen per year. The IMF estimates that the fossil fuel industry is receiving global subsidies totaling more than US$5.3 trillion per year. In contrast, the IMF estimated that renewable energy companies receive total global subsidies of $120 billion per year–equaling slightly more than 2% of subsidies for fossil fuels. Put another way, in less than a week, more subsidies are paid to fossil fuel companies than are paid to renewable energy companies in an entire year. (However, it should be noted that a significant percentage of the IMF’s figure is represented by the money spent by world governments to treat victims of fossil fuel-created air pollution, and the loss of income resulting from ill health and premature death.)
Kate Gordon closes her argument by looking at why we should care about green energy.
Shifting to clean technologies is extremely important for a variety of reasons: energy independence for all countries, reducing the health consequences of fossil fuels, reducing the destruction of the natural environment, slowing global warming, and more. This can only happen if the young companies currently developing new green technologies survive their infancy. And given the extreme uphill battle that green energy companies are facing, it’s absurd to cut subsidies to such companies, while increasingly large amounts of money are funneled to massive fossil fuel-driven corporations.
