Though the Solyndra scandal cast a shadow on government loan guarantees for renewables, some significant players are saying a bigger problem is market-distorting subsidies for fossil fuels in some countries.
The Organization for Economic Cooperation and Development and its energy arm, the International Energy Agency, joined to publish an analysis of data on government subsidies for fossil fuel industries across the globe which concluded that governments should be phasing out these handouts.
The subsidies, agency directors say, encourage wasteful energy use, tie up much-needed government money, distort the competitive energy market and prevent renewables industries from fairly competing.
Many countries across the globe are already in the process of phasing out these subsidies, the analysis found, including the United States, which has reduced support for fossil fuel production companies from $5 billion in 2009 to a proposed $3.6 billion in the 2012 federal budget. Germany and France have also been actively reducing subsidies, with Germany’s support for hard-coal mining falling from €4.9 billion in 1999 to €2.1 billion in 2009 and a plan for complete elimination of subsidies by 2018; in France, support for the coal industry was at €1 billion in 1990 which was reduced to €92 million by 2007 and then completed eliminated.
“While this is an encouraging start, much work remains to be done in order to realize the full extent of benefits,” said IEA Executive Director Maria van der Hoeven. “It is crucial that countries follow through on their commitments by implementing reforms that are well-designed and durable.”
Balancing The Books
In all cases, the agencies noted that the fossil fuel companies would potentially suffer losses and actions should be taken by national governments to mitigate the adverse affects, including job losses and local community concerns.
“We need well-targeted, transparent and timebound programs to assist poor households and energy workers who might be adversely affected in the short-term,” said OECD Secretary-General Angel Gurria. “OECD and IEA data and analysis can help guide the process.”
Maria van der Hoeven said that government subsidies have artificially reduced the prices of fossil fuels, noting that global governments spent $409 billion in 2010 and around $300 billion in 2009 to keep down fossil fuels prices.
Phasing out these subsidies, the agencies said, would also encourage development of other kinds of energy resources, including renewable fuels.
A full report with more data, titled ‘World Energy Outlook 2011,’ will be published by the IEA on November 9.
Photo Caption: Former International Energy Agency (IEA) Executive Director Nobuo Tanaka (right) of Japan and the former chairwoman of the ministerial meeting, Dutch Economic Affairs and now IEA Executive Director Minister Maria Van der Hoeven (left), give a press conference prior to the opening, on October 14, 2009 in Paris, of the IEA two-day session entitled ‘Answer to energy challenge with cooperation’.