Graph of the Day: The myth about energy subsidies

Ever hear the story about why renewable energy can’t compete without a subsidy? You hear it all the time from the fossil fuel industry. And the response from renewables? Take away fossil fuel subsidies, and they’d be glad to compete on level terms.

This graph below, displayed today by David Hochschild, a commissioner with the California Energy Commission, at the Energy Productivity Summer Study in Sydney, illustrates why the fossil fuel and nuclear industries don’t want that to happen.

Studies by the International Energy Agency point out that global subsidies for fossil fuels outstrip those for renewable energy nearly 10-fold. The International Monetary Fund said if climate and environmental costs were included, then the fossil fuel subsides increased another 10 times to nearly $5 trillion a year.

This graph, that Hochschild sourced from DBL Investors, shows the accumulated energy subsidies in the US under federal programs. Oil and gas dominate, followed by nuclear. Federal renewable energy subsidies, in the form of investment and tax credits, are a small fraction.

“The fossil fuel industry hates to talk about that,” Hochschild told RenewEconomy in an interview after his presentation.

“There is a myth around subsidies, but there is no such thing as an unsubsidised unit of energy.”

He said the oil depletion allowance had been in place for the oil industry since 1926, and would be ongoing, despite the fact it was one of the most profitable industries in the world. He cited insurance costs for nuclear plants – met by taxpayers – “without which there would be no nuclear plants”.

For natural gas, it was the drilling, or fracking, which had been made exempt from compliance with the safe drinking water act: “That is subsidy,” he said. And he pointed to taxpayer funded rail networks that have helped coal.

By contrast, the large-scale wind and solar industries in the US have had to content with repeated changes to their federal support mechanisms. The tax credits have been changed seven times in a decade.

“How can you plan a wind turbine factory or project in those types of conditions,” he asked.

And he used this graph to illustrate the short-term nature of the subsidies that renewable energy does get. And the biggest benefit. “You put subsidies in renewable energy and costs go down” to the point where they are not needed any more. That has not happened with fossil fuels and nuclear.