Energy subsidies are measures that keeps prices for consumers below market levels or for producers above market levels, or reduce costs for consumers and producers. Energy subsidies may be direct cash transfers to producers, consumers or related bodies, as well as indirect support mechanisms, as tax exemptions and rebates, price controls, trade restrictions, planning consent and limits on market access. They may include also energy conservation subsidies. In historical terms, subsidies for renewable energy have been lower compare to other forms of energy.^[1]

Overview

Main arguments for energy subsidies are:

• Security of supply - subsidies are used to ensure adequate domestic supply by supporting indigenous fuel production in order to reduce import dependency, or supporting overseas activities of national energy companies.
• Environmental improvement - subsidies are used to reduce pollution, including different emissions, and to fulfil international obligations (e.g. Kyoto Protocol).
• Economic benefits - subsidies in the form of reduced prices are used to stimulate particular economic sectors or segments of the population, e.g. alleviating poverty and increasing access to energy in developing countries.
• Employment and social benefits - subsidies are used to maintain employment, especially in periods of economic transition.^[1]

Main arguments against energy subsidies are: The Kyoto Protocol is a protocol to the international Framework Convention on Climate Change with the objective of reducing greenhouse gases that cause climate change. ...

• Some energy subsidies counter the goal of sustainable development, as they may lead to higher consumption and waste, exacerbating the harmful effects of energy use on the environment, create a heavy burden on government finances and weaken the potential for economies to grow, undermine private and public investment in the energy sector. ^[2]
• Impede the expansion of distribution networks and the development of more environmentally benign energy technologies, and do not always help the people that need them most.^[2]
• The study conducted by the World Bank finds that subsidies to the large commercial businesses that dominate the energy sector are not justified. However, under some circumstances it is reasonable to use subsidies to promote access to energy for the poorest households in developing countries. Energy subsidies should encourage access to the modern energy sources, not to cover operating costs of companies.^[3] The study conducted by the World Resource Institute finds that energy subsidies often go to capital intensive projects at the expense of smaller or distributed alternatives.^[4]

Types of energy subsidies are:

• Direct financial transfers - grants to producers; grants to consumers; low-interest or preferential loans to producers.
• Preferential tax treatments - rebates or exemption on royalties, duties, producer levies and tariffs; tax credit; accelerated depreciation allowances on energy supply equipment.
• Trade restrictions - quota, technical restrictions and trade embargoes.
• Energy-related services provided by government at less than full cost - direct investment in energy infrastructure; public research and development.
• Regulation of the energy sector - demand guarantees and mandated deployment rates; price controls; market-access restrictions; preferential planning consent and controls over access to resources.
• Failure to impose external costs - environmental externality costs; energy security risks and price volatility costs.^[2]

In economics external cost refers to a negative side-effect of an economic transaction, an act of exchange, consumption, or production. ...

Shifting subsidies

In the US, the federal government has paid US$74 billion for energy subsidies to support R&D for nuclear power and fossil fuels from 1973 to 2003. Nuclear power R&D alone accounted for nearly US$50 billion of this expenditure. During this same time frame, 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.^[5] The phrase research and development (also R and D or R&D) has a special commercial significance apart from its conventional coupling of research and technological development. ... This article is about applications of nuclear fission reactors as power sources. ... Fossil fuels are hydrocarbon-containing natural resources such as coal, petroleum and natural gas. ... Renewable energy effectively utilizes natural resources such as sunlight, wind, tides and geothermal heat, which are naturally replenished. ... Efficient energy use, sometimes simply called energy efficiency, is using less energy to provide the same level of energy service. ... Solar power describes a number of methods of harnessing energy from the light of the sun. ... An example of a wind turbine. ... Biofuel is any fuel that derives from biomass _ recently living organisms or their metabolic byproducts, such as manure from cows. ...

Skeptics^[who?] have sometimes dismissed clean energy technologies such as solar and wind power by arguing that these technologies "can't compete on price without public subsidies". However, the history of coal, oil, natural gas, and nuclear power shows that no energy sector was developed without subsidies.^[5] In the US alone, the federal government spent US$74 billion to support R&D for nuclear and fossil fuels from 1973 to 2003. Nuclear power R&D accounted for nearly US$50 billion of this expenditure. During this same time frame, renewable energy technologies and energy efficiency together received US$26 billion.^[5] Clean energies are forms of energy which do not pollute the air, the ground, or the sea. ...

Many energy analysts^[who?] 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 in the USA has had.^[5][6]

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.^[7] The Organization for Economic Co-operation and Development (OECD) is an international organization of those developed countries that accept the principles of representative democracy and a free market economy. ...

References