Energy Subsidies - Allocation of Subsidies

Allocation of Subsidies

A 2009 study by the Environmental Law Institute assessed the size and structure of U.S. energy subsidies over the 2002–2008 period. The study estimated that subsidies to fossil-fuel based sources amounted to approximately $72 billion over this period and subsidies to renewable fuel sources totaled $29 billion. The study did not assess subsidies supporting nuclear energy.

The three largest fossil fuel subsidies were:

1. Foreign tax credit ($15.3 billion)
2. Credit for production of non-conventional fuels ($14.1 billion)
3. Oil and Gas exploration and development expensing ($7.1 billion)

The three largest renewable fuel subsidies were:

1. Alcohol Credit for Fuel Excise Tax ($11.6 billion)
2. Renewable Electricity Production Credit ($5.2 billion)
3. Corn-Based Ethanol ($5.0 billion)

In the United States, the federal government has paid US$74 billion for energy subsidies to support R&D for nuclear power ($50 billion) and fossil fuels ($24 billion) from 1973 to 2003. During this same timeframe, renewable energy technologies and energy efficiency received a total of US$26 billion. It has been suggested that a subsidy shift would help to level the playing field and support growing energy sectors, namely solar power, wind power, and biofuels. However, many of the "subsidies" available to the oil and gas industries are general business opportunity credits, available to all US businesses (particularly, the foreign tax credit mentioned above). The value of industry-specific subsidies in 2006 was estimated by the Texas State Comptroller to be just $3.06 billion - a fraction of the amount claimed by the Environmental Law Institute. The balance of federal subsides, which the comptroller valued at $7.4 billion, came from shared credits and deductions, and oil defense (spending on the SPR, energy infrastructure security, etc.).

The most important subsidies to the nuclear industry have not involved cash payments. Rather, they have shifted construction costs and operating risks from investors to taxpayers and ratepayers, burdening them with an array of risks including cost overruns, defaults to accidents, and nuclear waste management. This approach has remained remarkably consistent throughout the nuclear industry’s history, and distorts market choices that would otherwise favor less risky energy investments.

Many energy analysts, such as Clint Wilder, Ron Pernick and Lester Brown, have suggested that energy subsidies need to be shifted away from mature and established industries and towards high growth clean energy. They also suggest that such subsidies need to be reliable, long-term and consistent, to avoid the periodic difficulties that the wind industry has had in the United States.

According to the OECD, subsidies supporting fossil fuels, particularly coal and oil, represent greater threats to the environment than subsidies to renewable energy. Subsidies to nuclear power contribute to unique environmental and safety issues, related mostly to the risk of high-level environmental damage, although nuclear power contributes positively to the environment in the areas of air pollution and climate change. Subsidies to renewable energy are generally considered more environmentally beneficial, although the full range of environmental effects should to be taken into account.

A 2010 study by Global Subsidies Initiative compared global relative subsidies of different energy sources. Results show that fossil fuels receive 0.8 US cents per kWh of energy they produce (although it should be noted that the estimate of fossil fuel subsidies applies only to consumer subsidies and only within non-OECD countries), nuclear energy receives 1.7 cents / kWh, renewable energy (excluding hydroelectricity) receives 5.0 cents / kWh and biofuels receive 5.1 cents / kWh in subsidies.

In 2011, IEA chief economist Faith Birol said the current $409 billion equivalent of fossil fuel subsidies are encouraging a wasteful use of energy, and that the cuts in subsidies is the biggest policy item that would help renewable energies get more market share and reduce CO₂ emissions.

In February 2011 and January 2012 the UK Energy Fair group, supported by other organisations and environmentalists, lodged formal complaints with the European Union's Directorate General for Competition, alleging that the Government was providing unlawful State aid in the form of subsidies for nuclear power industry, in breach of European Union competition law.

One of the largest subsidies is the cap on liabilities for nuclear accidents which the nuclear power industry has negotiated with governments. “Like car drivers, the operators of nuclear plants should be properly insured,” said Gerry Wolff, coordinator of the Energy Fair group. The group calculates that, "if nuclear operators were fully insured against the cost of nuclear disasters like those at Chernobyl and Fukushima, the price of nuclear electricity would rise by at least €0.14 per kWh and perhaps as much as €2.36, depending on assumptions made".