The cost of propping up oil

Sensemaking / The cost of propping up oil

As the UK announces a new Energy Bill, investors call for a clearer picture of fuel subsidies.

28 Nov 2012

Public opinion of renewables is often coloured by the apparent favoritism they receive at the hands of government. Critics of clean energy subsidies, such as Feed-in Tariffs or the UK’s Renewable Heat Incentive, sometimes forget that the fossil fuel industry received similar preferential treatment some 40 years ago. What’s more, it still does – but today the support is offered in a less transparent way, and the true costs are difficult to pin down. A 2011 report by Ecofys cited 53 types of ‘intervention’ in the Dutch energy market, most of which are not publicly recognised as subsidies.

The actual price of developing clean energy – compared to fossil fuels – is hidden in this rather murky picture, and determination to uncover it is on the rise. A group of investors led by Triodos Bank, WHEB Asset Management and UKSIF, alongside green energy companies and NGOs, has called for the UK Government to set its records straight on the real costs of developing the different sectors in the energy mix, taking into account all interventions – subsidies and beyond.

Meanwhile, details of the UK's new Energy Bill have just been announced. The Bill had proved a point of contention for UK Government departments. The Treasury wanted to stick to the status quo, focusing on a mix of oil, gas, coal and nuclear with upfront investments. On the other hand, the Department of Energy and Climate Change was pushing for a broader policy framework to stimulate the development of renewable energy technologies in UK, thinking long-term. The result? Plans to invest £7.6 billion between 2015 and 2020 in upgrades to the UK’s ageing energy infrastructure, including some support for renewables – but no decarbonisation target. 

“We need to avoid falling into the short-term trap of a fossil fuel strategy,” says James Vaccaro, Head of Market and Corporate Development at Triodos Bank: “The ‘dash for gas’ mentality is like saying, ‘Stay warm this winter by burning your own furniture’.”

Vaccaro explains that shedding light on the true costs of fossil fuels will likely lead to long-term government support for renewables. This is essential to reassure investors of the stability of financing renewable energy projects and technological R&D on a large scale. It could be the key to a low-carbon future, he says, making it possible to secure the funds needed to develop more wind farms, realise the full potential of wave and tidal power in the UK and make our electricity grid smarter.

As the Environmental Investigation Agency points out in its 2012 World Economic Outlook, dirty energies still receive more financial support from governments than clean ones. Global fossil fuel subsidies, taking the form of tax credits, soft loans or trade measures, reached $409 billion in 2010, compared to $60 billion for renewable energy subsidies.

“These dirty-energy subsidies dwarf the support given to clean energy”, says Peter Madden, CEO of Forum for the Future.

Without a long-term policy with a focus on renewables, the UK risks missing its target to cut emissions by 80% by 2050 (from a 1990 baseline), warns Nick Molho, Head of Energy Policy at WWF-UK. Moreover, it risks missing out on large-scale investments attached to the growing renewables market.

Molho points to Denmark and Germany as examples of governments that have smartly laid out long-term policy frameworks to encourage renewables – complemented, in both cases, by energy efficiency incentives for businesses. What does this mean for local businesses? For a start, they can afford to turn to sustainable energy producers – the equivalents of Good Energy and Ecotricity in the UK – and to invest in on-site renewables, offered by technology firms like Solarcentury.

This bold approach has also boosted both countries’ economies, and fostered the development of new businesses to secure local supply chains for the emerging technologies. It’s no surprise that Denmark and Germany host the two largest wind turbine manufacturers in the world: Vestas Wind Systems and Siemens Wind Power.

The question is, can the UK afford to plough more money into fossils, coal and nuclear, at the expense of real progress to harness the wind, the sun and the sea? – Emilie Beauchamp

Triodos Bank is a Forum for the Future partner.

Photo: Ingram Publishing / Thinkstock

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