Tag Archives: subsidy

UK slaps massive 800% tax increase for rooftop solar panels

The US isn’t the only developed country backtracking on environmental development: the UK recently announced a new law that will bring a devastating tax increase on solar energy. As it has become so common in recent months, the government said it’s a good thing which will help development, but provided no explanation as to how it will help anything.

A row of houses sporting solar houses. Image credits: Christine Westerback.

Although it is still a leader in European solar power generation, the UK is making huge strides in the opposite direction. The country’s solar industry already lost 12,000 jobs last year and there has been an 85 percent reduction in the deployment of rooftop solar schemes, largely due to political intervention: the government drastically cut incentives for householders to fit solar panels and ended subsidies for large-scale “solar farms”. Now, they’re taking things even further, announcing that schools and businesses who haven’t been paying taxes for solar energy will now have to pay, and those who have been paying will pay 8 times more. To make things even peachier, the tax increase doesn’t apply to private schools, for a reason that has not been disclosed.

Needless to say, reactions have been highly critical of this move. The speech of Chancellor Philip Hammond on the 2017 budget barely even mentioned renewable energy, although he did emphasize a promise to help the oil and gas industry “maximise exploitation” of the remaining reserves in the North Sea.

“This is slightly less than helpful for the British solar industry,” the Solar Trade Association’s Leonie Greene told The Independent, in a very British fashion. “It’s absurd. Energy tax policy is going in the opposite direction to how we know energy needs to change and how it’s changing. What he is doing is advantaging old technology and disadvantaging new ones. It’s nonsensical.”

Despite pleas from the industry, schools, businesses, and the public sector, the government refused to back down on this. They specifically mentioned that this will be beneficial for schools but again, did not mention how. A petition with over 200,000 signatures from a school in London will be delivered to England’s Treasury Department today, but expectations are minimal

This is extremely ironic because according to the government’s own figures, solar is expected to become the cheapest form of electricity generation sometime in the 2020s. It’s like the UK just decided to shoot itself in the leg — and this won’t only affect the businesses (especially small businesses), schools, and farms with solar panels, it will also affect average consumers, driving the price of electricity up by a notch. Leonie Greene adds:

“That is crazy because it is the cheapest and most popular source of energy. What that means is consumers are paying more. We are taking away the competitive pressure solar has put on other technologies. We need something to change for the solar industry. We are just trying to get a level playing field with fossil fuels.”

In a normal world, where politicians are unbiased and simply want the best for their citizens, they should be offering great support for renewable energy — especially in the UK. The country is going through a severe pollution crisis. The situation is so bad that the UK has been taken to court twice and lost, being ordered by the supreme court to take action against climate change. Yet not only are they withdrawing subsidies and support for renewable energy, they’re actually making it harder for renewables to complete against fossil fuels. Just like in the US, the government hangs on to the oil and gas pipedream, ignoring both the environmental and economic reality: renewables are getting cheaper, and fast. Fossil fuels may be the past, they may be a big part of the present, but they’re certainly not the future. Installing new renewables is already cheaper than fossil fuels.

James Thornton, chief executive of ClientEarth, the NGO that sued the UK and won, declared:

“Despite being ordered twice by the courts to take urgent steps to tackle the country’s air pollution crisis, it seems the Treasury has still not grasped the urgency of the situation,” he said. “We fear that Government plans [on air pollution], which are due out next month, may well fall short of what is needed.”

His fears — to say the least — seem rational. With Brexit right around the corner, the government seems set to scrape several of the EU regulations and give into the fossil fuel lobby. Although not as vocal and not as absurd as the Trump government, there are clear similarities to be drawn.

Paris Climate Summit Begins with Unprecedented Committment

The eyes of the world are set on Paris, as the COP21 climate summit started today with the ambitious goal of achieving a legally binding and universal agreement on climate, from all the nations of the world. But while this dance sometimes paces close to the impossible, there are also reasons to be optimistic: world leaders opened up with an unprecedented call to end fossil fuel subsidies and focus on sustainable development.

Image via COP21 Flickr.

“Fossil fuel subsidy reform is the missing piece of the climate change puzzle,” began John Key, Prime Minister of New Zealand. “It’s estimated that more than a third of global carbon emissions, between 1980 and 2010, were driven by fossil fuel subsidies. Their elimination would represent one seventh of the effort needed to achieve our target of ensuring global temperatures do not rise by more than 2°C. As with any subsidy reform, change will take courage and strong political will, but with oil prices at record lows and the global focus on a low carbon future – the timing for this reform has never been better.”

Indeed, in the first day of the Summit, I was surprised to see that many of the high representatives were not only advocating the development of renewable energy sources – but also stopping subsidies for the fossil fuel industries, and even charging them for negative externalities.

John Key was not the only one to say that fossil fuels are a losing bet. Stefan Löfven, Prime Minister of Sweden, said:

“History will prove fossil fuel to be a dead end. Sweden will be amongst the first fossil free welfare nations of the world. And eliminating fossil fuel subsidies is an important step on this path.”

Wait, what are subsidies?

If you have no idea what I’m talking about by now, then a short addendum is in order. A subsidy is an external financial support given to an economic sector with the aim of improving economic and social policies. For example, the government can reduce taxes for eco-friendly products since they can help reduce negative externalities and improve the consumers’ health, or provide incentives for companies with many employees to promote job creation. Globally though, fossil fuel companies get the lion’s share.

Fossil fuel subsidies reached $90 billion in the OECD and over $500 billion globally in 2011, and things haven’t changed much since. This means that in some cases, renewable energy can be cost competitive and even more efficient than fossil fuels, but the subsidies tip the balance the other way. This is what many governments and companies are proposing.

Close to 40 countries have endorsed the Fossil Fuel Subsidy Reform Communiqué, including Canada, Chile, France, Germany, Italy, Malaysia, Mexico, Morocco, Peru, the Netherlands, the Philippines, Samoa, the United Kingdom, the United States, Uganda and Uruguay. This seems fine and good, except…

Put your money where your mouth is

There are reasons to be skeptical. The United Kingdom, while endorsing this reform, recently announced an increase of fossil fuel subsidies – becoming the only G7 country to do so. So endorsing something unofficially doesn’t really cost anything, and I’m afraid that at least for the UK, this is a classic case of greenwashing. It remains to be seen if other countries are more committed to this plan, and whether we can expect a phasing out of fossil fuel subsidies.

Fossil fuels are subsidized by $14.5 billion a day

A shocking conclusion came from an International Monetary Fund report: they found that fossil fuels are subsidized by a whopping $5.3 trillion dollars a year (2015), more than total health spendings of the entire world combined and 6.5% of the total global GDP.

Data via IMF, chart via The Guardian.

Energy subsidies are a hot topic nowadays, with many people blaming governments for maintaining subsidies for inefficient and polluting technologies. A subsidy is a form of financial aid or support extended to an economic sector with the aim of promoting economic or social policy. The IMF conducted a ‘comprehensive’ look on all types of global subsidies given to the fossil fuel industry.

“This paper provides a comprehensive, updated picture of energy subsidies at the global and regional levels. It focuses on the broad notion of post-tax energy subsidies, which arise when consumer prices are below supply costs plus a tax to reflect environmental damage and an additional tax applied to all consumption goods to raise government revenues,” the report reads.

A dark pact

Image via Eco Watch.

This analysis casts a lot of doubt on the idea of fossil fuel cheapness – if there are so many hidden costs, are they actually cheap? Compared with the subsidies that renewables get (an estimated $120 billion a year), $5.3 trillion is grotesque. Is this really a reasonable way to spend government money?

Furthermore, as the IMF points out, these subsidies primarily reflect underpricing from a domestic (rather than global) perspective; in other words, it’s these subsidies that help keep the oil price artificially low.

Much of that sum comes from polluters not being forced to pay for burning coal, oil and gas. Most governments demand a pollution tax, but the oil and gas industry is often subsidized and not required to pay this tax, despite the damage they are doing both at a local and on a global level.

Nicholas Stern, an eminent climate economist at the London School of Economics believes this is an aberration:

“This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”

Furthermore, Stern went on to say that the figure the IMF got is almost certainly an understatement:

“A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.”

The UN’s Intergovernmental Panel on Climate Change also believes the real figure is greater than that. The IMF calculated this cost using an official US government estimate of $42 a tonne of CO2 (in 2015 dollars), a price “very likely to underestimate” the true cost, according to the IPCC.

But while Stern and the IPCC found the sum actually underwhelming, financial analysts were generally shocked to read the figures.

“These [fossil fuel subsidy] estimates are shocking,” said Vitor Gaspar, the IMF’s head of fiscal affairs and former finance minister of Portugal. “Energy prices remain woefully below levels that reflect their true costs.”

Even the people conducting the report couldn’t believe it.

David Coady, the IMF official in charge of the report, said: “When the [$5.3tn] number came out at first, we thought we had better double check this!” But the broad picture of huge global subsidies was “extremely robust”, he said. “It is the true cost associated with fossil fuel subsidies.”

A scale of reference

subsidies1If you’re wondering just how much is $5.3 trillion, it’s 6.5% of global GDP. 6.5% of the entire world’s GDP goes into oil, gas and coal subsidies. Over half that amount goes to governments treating the victims of air pollution and the income lost because of ill health and premature fatalities.

In terms of climate change, the costs resulting from fossil fuel emissions account for subsidies of $1.27tn a year, about a quarter of the total, with coal having the most negative effects.

Of course, energy subsidies vary significantly from region to region and from country to country. For the total sum, China subsidizes fossil fuels the most, more than the US, the EU, Russia, India and Japan in total. But on the bright side, subsidy reforms are already underway in countries such as Egypt, Indonesia, Mexico, Morocco and Thailand. In India, subsidies for diesel ended in October 2014 – something which many claimed wasn’t possible.

Data via the IMF, chart via the Guardian.

Removing fossil fuels subsidies

So what would happen if we eliminated fossil fuels subsidies, or at least greatly reduced them? Well at a first glance, that wouldn’t be a good thing, because it would lead to increased energy prices, but then again, most of the subsidies go to the rich anyway. The 20% richest people get 6 times more subsidies than the 20% poorest people – so this would actually be an opportunity to reduce poverty by increased tax revenues to provide more adequate support.

Also, it would make renewables much more attractive – you don’t even need to subsidize renewables, just to stop subsidizing fossil fuels, and they would suddenly become much cheaper. That would benefit everybody.

“If we get the pricing of fossil fuels right, the argument for subsidies for renewable energy will disappear. Renewable energy would all of a sudden become a much more attractive option.”

But if we look a bit deeper, we’ll also see that much of the subsidies go towards discovering and exploring new reserves – and we don’t really want to explore new reserves, because that would ultimately lead to even more emissions and global warming. Shelagh Whitley, a subsidies expert at the Overseas Development Institute, said:

“The IMF report is yet another reminder that governments around the world are propping up a century-old energy model. Compounding the issue, our research shows that many of the energy subsidies highlighted by the IMF go toward finding new reserves of oil, gas and coal, which we know must be left in the ground if we are to avoid catastrophic, irreversible climate change.”

So greatly simplifying things, by reforming subsidies and redirecting, reducing or eliminating them we would add some additional taxes to the rich of the world and reduce the gargantuan profits of the (by far) most lucrative industry on the planet. But on the other hand, we would be conserving the Earth’s climate, reducing pollution, reducing massive health hazards, promoting sustainable energy sources and stimulating the development of the poorer people of the world… it almost sounds to good to be true. When you draw the line, every single nation would benefit from this at a local level, and we would all benefit from it at a global level. But don’t take it from me, take it from Gaspar himself:

“The icing on the cake is that the benefits from subsidy reform – for example, from reduced pollution – would overwhelmingly accrue to local populations,” he said. “By acting local, and in their own best interest, [nations] can contribute significantly to the solution of a global challenge,” said Gaspar. “The path forward is clear: act local, solve global.”

You can read the entire report here.

 

Rich countries giving the oil, gas and coal industres $88 bn a year in subsidies and tax cuts only for new reserves

Rich countries are effectively giving oil, gas and coal companies $88 bn a year to explore new reserves, despite clear evidence that those industries are causing global warming.

Rich companies are investing heavily in fossil fuels, much more than in renewables. Image via The Malay Online.

From a climate change perspective, it would be best to leave those reserves in the ground and focus on renewable energy, but despite a huge growth, renewable energy is not yet able to compensate for oil and gas; one of the main arguments is that renewable energy is often times more expensive than conventional energy… but then again, these subsidies are working against renewables, making oil, gas and coal cheaper.

The most detailed breakdown yet of global fossil fuel subsidies has shown that the US provides companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. These are public money going to new fossil fuels explorations in the form of tax cuts and subsidies. Also, the report highlights that the money went to major multinationals, and not smaller companies.

“The evidence points to a publicly financed bail-out for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2C,” say the report’s authors.

Oil and gas exploration expenditure in G20 countries (public and private). Photograph: ODI/Rystad Energy

Britain was especially generous. In 2010-2014, it gave $4.5bn to French, US, Middle Eastern and north American companies to explore the North Sea for fast-declining oil and gas reserves. The majority of the money went to two French companies, GDF Suez and Total.

There’s nothing wrong per se with subsidizing industry – but the thing is that now, unlike in previous decades, we understand the impact we are having on the planet’s climate. Well, we don’t understand it fully, but we know that we are causing global warming, and that fossil fuels are the main driver for this change. So if we look at the big picture, we’re financing our own future problems.

“The IPCC [UN climate science panel] is quite clear about the need to leave the vast majority of already proven reserves in the ground, if we are to meet the 2C goal. The fact that despite this science, governments are spending billions of tax dollars each year to find more fossil fuels that we cannot ever afford to burn, reveals the extent of climate denial still ongoing within the G20,” said Oil Change International director Steve Kretzman.

But even thinking locally, there are objections to these policies. There are arguments that it doesn’t make economic sense to invest in what should already be a declining industry – all the more so one which is causing environmental damage. If anything, we should be implementing taxes on these industries, not tax cuts. Also, it makes much more sense to invest these subsidies in renewable energy.

“This is real money which could be put into schools or hospitals. It is simply not economic to invest like this. This is the insanity of the situation. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power and they are undermining the prospects for an ambitious UN climate deal in 2015,” said Kevin Watkins, director of the ODI.

To put things into perspective, rich countries gave $88 bn to explore new oil, gas and coal reserves, and four times less in developing new renewable energy technologies. The authors of the report expressed their surprise to this fact.

“In parallel with the rising costs of fossil-fuel exploration and production, the costs of renewable-energy technologies continue to fall rapidly, and the speed of growth in installed capacity of renewables has outperformed predictions since 2000,” said the report.

Here is an interactive map showing how the G20 countries are giving fossil fuel companies subsidies and tax cuts.

Fossil fuel subsidies ‘reckless use of public funds’, report concludes

The world is spending half a trillion dollars on fossil fuel subsidies every year, according to a new report released by the Overseas Development Institude (ODI). Let me say that again: about $500.000.000.000 are spent each year with the aim of promoting the beneficial economic and social outcomes of the oil industry – that’s what a subsidy is.

Perverse incentives

1

Via ODI.

Many of the world’s richest countries continue to pour money into fossil fuel subsidies – the average adult in a developed country spends spends $112 yearly subsidizing the oil and coal industry. Developing countries don’t do much better either: in developing countries the majority of benefits from fossil fuel subsidies go to the richest 20% of households.

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Via ODI.

What’s even more worrying is that as oil prices continue to increase, oil subsidies continue to grow in compensation; on the other hand, for every $6 spent on fossil fuel subsidies in 2011, only US$1 of support went to renewable energy.

“This is a reckless use of public money at a time when people are very concerned about energy costs,” Kevin Watkins, executive director of the ODI, told ZME Science. “Why are we spending $112 per adult in the OECD countries subsidising an energy system that is driving us towards dangerous climate change when there are alternatives?”

3

Via ODI.

The negative effects are huge, and they’re creating what is called perverse incentives – encouraging companies to keep drilling more and more for oil instead of focusing on more envrionmentally friendly solutions. This poses a huge hurdle in front of renewable energy development, and seriously undermines any significant effort to reduce carbon emissions and global warming, the report explains – and it’s all supervised by governments – something which is especially concerning when you considere that domestic and international support for fossil fuels dwarfs spending on health and education in a number of countries, the ODI adds.

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Via ODI.

“Almost all these subsidies go to those who are connected to the grid because the governments give money to the energy providers, who pass it on to consumers. The top 20% of these societies get around half of the total subsidy package,” said Kevin Watkins.

The strange thing is that there is a better way, and it’s a win-win for everybody. Decreasing and ultimately eliminating subsidies could pave a green future:

Via ODI.

Via ODI.

“This has to be the mother of all win-win scenarios,” said Kevin Watkins. “You’d have a win for taxpayers, a win for governments north and south and you’d have a win for the planet as well.”

You can download a summary of the report or the full thing here.

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