Subsidising the Argument

by | Oct 27, 2011

There has been a fair amount of discussion about subsidies in the ongoing debate about energy policies recently.

Damian Carrington in today’s Guardian puffs up Chris Huhne’s speech at the Renewable UK (formerly the British Wind Energy Association) conference:

The speech is worth a read as it tackles three renewables “myths” head on. First, the myth that renewables are uneconomic and held up by government cash alone. In fact, more than 70% of global renewables investment in 2010 was private finance. Furthermore, said Huhne: “Globally, subsidies for fossil fuels outstrip subsidies for renewables by a factor of five.” Another analysis suggests a factor 12.

Below the line, a commenter with the appropriate moniker, NoneTooClever, congratulates Carrington…

Those shale gas cheerleaders also fail to take into account the huge fossil fuel subsidy their favoured hard to get at hydrocarbon gets.

The fact that ‘only’ 30% of the capital costs of renewable energy world wide are subsidised is no argument that renewable energy doesn’t enjoy huge subsidies. Moreover, the issue in the UK is not to to what extent the capital costs of renewable energy are subsidised, but how much consumers pay for their output. An article in the Telegraph earlier this year suggests that approximately half of the income generated by wind turbines is subsidy. It’s easy to find private finance when you guarantee profit for the ‘investment’. It is surprising that it needs as much as 30%. But then, Huhne was discussing global subsidies, rather than subsidies in the UK.

Even more disingenuous is the claim that fossil fuel subsidies outstrip subsidies for the renewable sector by five (or twelve) times. It makes no sense to talk about the proportions of global and absolute subsidies without any idea of how much actual substance were produced by those subsidies. If conventional energy production is more than five or twelve times greater than renewable energy production, then in fact renewable energy enjoys a greater level of subsidy than conventional energy. I will return to the point shortly.

Carrington seems completely innumerate. Not only does he fail to subject Huhne’s claim to the most basic scrutiny, he also takes the higher claim of a factor of 12 at face value. But following his link takes you to this absurd piece of doublethink:

“One of the reasons the clean energy sector is starved of funding is because mainstream investors worry that renewable energy only works with direct government support,” said Michael Liebreich, chief executive of New Energy Finance. “This analysis shows that the global direct subsidy for fossil fuels is around ten times the subsidy for renewables.”

Carrington on the one hand quotes Huhne, who seems to reject ‘the myth that renewables are uneconomic and held up by government cash alone’… and that ‘more than 70% of global renewables investment in 2010 was private finance’ and then points to an analysis which says that ‘mainstream investors worry that renewable energy only works with direct government support’. It would seem that Huhne is completely wrong, and Carrington simply daft for failing to spot it.

Then there is the problem with the analysis itself. If ‘investors worry that renewable energy only works with direct government support’, it’s possibly a sign that ‘renewable energy only works with direct government support’. If it weren’t the case, why would Huhne continue to promise government support in the form of defacto subsidies, paid for by the consumer? Why would 30% of renewable energy projects need subsidies? The analysis doesn’t seem to have an answer.

Matt Ridley, the Rational Optimist does, though…

Chris Huhne, the UK energy secretary, boasts that wind farms and other renewable energy schemes will create 9,000 jobs this year. Since they are all subsidised, each one is in effect sponsored by a newly unemployed person elsewhere in the economy.

Shale gas already supports 140,000 jobs in Pennsylvania alone, up from about zero in 2007. This is without subsidy; in fact, the reverse — hefty tax revenue. Pennsylvania’s population is one-fifth of Britain’s.

So much for NoneTooClever’s concern that shale gas requires subsidies.

Ridley’s makes a robust argument, and one which Carrington attempts to anticipate:

[Huhne] specifically targeted those puffed up by the ludicrous hype over the UK’s fledgling shale gas find: “Unconventional gas has not yet lit a single room nor cooked a single roast dinner in the UK.

Carrington’s an especially poor argument. Unsubsidised wind, too, has not lit a single room, nor cooked a single roast dinner in the UK. And the UK’s energy policies have contributed to a steady increase in bills and the rates of energy poverty. As argued here in previous posts, emphasis on reducing energy demand and renewable energy in policy comes at the expensive of allowing such developments that can light rooms and cook roast dinners. Five million homes in the UK now struggle to light their rooms and cook their dinners. 2,700 people die each year because the UK’s energy policies fail to respond to their needs. Carrington’s innumeracy knows no bounds. It’s easy to ignore when he’s just being simply daft, but this failure of his sense of proportion moves him into the ‘dangerously stupid’ category.

Carbon Brief take a break from getting their knickers in a twist about what the GWPF and Daily Mail are up to, to cover the same claims about subsidies.

In recent months, a great deal of attention has focused on the costs of subsidies for renewable energy – so much so that the media campaign against ‘green energy taxes’ on consumer bills has been held responsible for the government rowing back on some of its green agenda. This is in spite of the fact that, as we have detailed, many of the claims made do not appear to have anything to substantiate them – and what evidence there is undermines or refutes them.

It is therefore sobering to realise just how substantial subsidies toward fossil fuel energy are on the global level. The International Energy Agency (IEA) reported this month that fossil fuel subsidies currently amount to nearly half a trillion dollars. On Monday, the chief economist of the IEA urged the world to slash fossil fuel subsidies in non-OECD countries. He told the online magazine Euractiv that

“Today $409 billion equivalent of fossil fuel subsidies are in place which encourage developing countries – where the bulk of the energy demand and CO2 emissions come from – [towards a] wasteful use of energy”

$409 billion certainly sounds like a lot of money. In UK terms, it’s £255 billion. It’s still a lot of money. But, hang on… How much money is it, really?

Cast your minds back to yesterday. Chris Huhne said

We already have more installed offshore wind than anywhere else in the world and we are determined to remain at the forefront. That’s why we set aside £200 million for the development of low-carbon technologies, including £60m for supporting major new manufacturing projects on the English coast.


With over £200 billion worth of energy infrastructure needed by the end of the decade, this is our golden chance to deliver a greener future.

It’s going to cost the UK roughly the same amount of money to produce a ‘low carbon economy’ over the next eight years as the entire world spends in a year on ‘subsidising fossil fuels’ in a year. Yet the rest of the world has 116 times the population of the UK. Furthermore, this won’t, on anyone’s measure, be making energy any cheaper for British consumers. The consumer will have to find that £200 billion, as well as meet the rising costs of energy. The words ‘dangerously stupid’ no longer seem sufficient. Carbon Brief are ‘talking pants’, as we say here.

So let’s try to establish a sense of proportion for Huhne, Carrington, and Carbon Brief.

The complaint Carbon Brief seem to be making is that $409 billion is spent on subsidising fossil fuels. The complaint Carrington makes is that this is up to 12 times the amount of subsidies that the renewable sector enjoys. The figures are somewhat confused, some referring to 2008, and some 2010. But they’re in the same ball park, and the Bloomberg complaint is that “This analysis shows that the global direct subsidy for fossil fuels is around ten times the subsidy for renewables.”

However, according to the IEA (PDF here), in 2008, the world produced fossil fuels (coal, oil, gas, peat) equivalent to 10,065 million tonnes of oil (Mtoe), but only 90.2Mtoe of energy from renewables (geothermal, solar, electricity and heat, wind). So although renewables only enjoyed a tenth (or so) of the subsides that fossil fuels received, fossil fuels accounted for 112 times as much energy. In other words, on a Mtoe basis, the renewable sector received nearly 13 times as much subsidisation as the fossil fuel sector.

This calculation doesn’t include hyro-electric generation. Some might say this is unfair. But large hydro projects are not included in the UNEP’s definition of ‘renewable’, though small hydro is:

$187 BILLION WAS INVESTED IN LARGE AND SMALL SCALE RENEWABLES GENERATING CAPACITY (EXCLUDING LARGE HYDRO), compared to $219 billion and $157 billion of gross and net fossil-fuel investment respectively. If the estimated $46 billion of large hydro investment is included in the renewable energy total, then renewables investment is clearly ahead of both gross and net investment in fossil fuel capacity.


The biggest sector of renewable power in operation worldwide is large hydro, with some 945GW generating in 2008 according to International Energy Agency estimates. However hydro-electric projects of more than 50MW are not included in the main figures in this report, due to the questionable social and environmental impact of some large hydro schemes.

Similarly, the figure doesn’t include the category ‘combustible renewables and waste’, which produces a surprising amount of energy — 1225.49 Mtoe, or about a third as much as coal and peat. Clearly, the practice of burning trees and rubbish needs no subsidy to make it work.

Of course, we should probably count some small hydro and waste-to-energy amongst the beneficiaries of the subsidies. And of course the calculation above is crude. But what is objectionable about the arguments offered by Chris Huhne, Damian Carrington, and the Carbon Brief is their haste to make a point based on face-value stats, which fail comprehensively to provide perspective and comparison. Adding perspective to their claims, and putting them into a meaningful context reveals a picture which, if not a complete inversion of what they claimed, certainly makes for a less stark image nonetheless. The simple black-and-white storyline they tell turns out to be the kind of misrepresentation Carbon Brief and Guardian journalists claim to want to expose, put out by ‘green economy deniers’. There is a debate to be had, only the likes of Huhne, Carrington and the Carbon Brief deny it.


  1. Jonathan Drake

    Any subsidies in the UK for hydrocarbon production must surely be small compared to the amount of taxation. Maybe renewables should be taxed at the same rates?

    • Tax rates on UKCS production were unexpectedly
    increased in the 2011 Budget with the supplementary
    charge on Corporation Tax rising from 20% to 32%. The
    marginal rate of tax on company profits now varies from
    62% (previously 50%) to 81% (75%), depending on the
    • The industry paid £8.8 billion in production taxes in the tax
    year 2010-11, one fifth of total corporation taxes received
    by the Exchequer
    • This is expected to rise to over £13 billion in 2011-12,
    providing more than one quarter of total corporation
    • The wider supply chain is estimated to have contributed
    another £6 billion in corporate and payroll taxes
    • In more than 40 years to 2010, corporate taxes charged
    on oil and gas production have contributed £293 billion (in
    2010 money) to the Exchequer, i.e. excluding such taxes
    paid by the supply chain

  2. Mooloo

    Johnathan: Currently in Britain two-thirds of the cost of petrol is excise (or VAT on that excise).

    The UK government will take £30 billion or thereabouts in 2012 (though I struggled to find recent figures) by direct taxation of petrol.

    GIven there is an absolutely enormous direct tax on petrol, it is incredible anyone can suggest the carbon industry in subsidised.

  3. George Carty

    The only way I believe fossil fuels could be classed as “subsidized” is if the current absence of carbon taxation is seen as a “subsidy”. And aren’t renewables interests and natural gas interests not rivals at all, but rather allies against coal and nuclear? (Because wind turbines are worthless without gas turbines to back them up…)



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