Climate realists rightly draw attention to the vast subsidies paid to support renewable energy – wind and solar. These subsidies are ramping up the price of energy in Britain and Europe. They are forcing households and pensioners into fuel poverty. They are doing huge damage to energy-intensive businesses like steel, aluminium, petroleum refining, chemicals, glass and cement. They are driving plant closures and job losses.
But every so often someone on the other side of the debate will say “But fossil fuels also get big subsidies” – or even “fossil fuel subsidies are greater than those for renewables”. This is plain not true (or as we say in plain English, a lie) even though it is based on a paper from the IMF. The proposition has been forensically debunked by the Telegraph’s Sam Bowman.
How could the IMF get it so wrong? What they seem to have done is to take what economists call “the externalities” of fossil fuels – that is, the costs and damages they imagine are inflicted on humanity in general by fossil fuel use – and treat these as “subsidies”. Of course they are no such thing. It is an abuse of language – and downright misleading – to report them in this way.
They start with the assumption that anthropogenic CO2 emissions are in fact causing global warming – a proposition increasingly open to question. Then they estimate the cost of the damage which (they believe) is or may be the consequence of global warming. But here, we’re into wild estimates. How long is a piece of string? In fact most serious analyses of the cost of global warming show that the costs of mitigation exceed the anticipated damage (the Stern Report is a rare exception).
They also wholly ignore the positive externalities of CO2 and climate. For example higher temperatures will result in fewer cold-related deaths and fewer temperature-related deaths overall. Elevated atmospheric CO2 levels result in more rapid plant growth and bio-mass formation, and higher crop yields to feed a hungry earth.
There are two other tricks that the Greens and their fellow-travellers use to inflate their claimed “subsidies”. Take the VAT on domestic fuel oil in the UK. This is set at 5%, as against a general VAT rate of 20%. So they count the difference – 15% – as a “subsidy”. It is of course no such thing. A subsidy is where the government (or whoever) pays money to make a product or service cheaper than it would otherwise be. The opposite of a subsidy is a tax. It doesn’t matter whether that tax is 20% or 5% – it’s still a tax, not a subsidy And in the West, fossil fuels are taxed, not subsidised.
The other device is to take countries like Russia and Saudi Arabia, where the cost of petrol is indeed subsidised for local nationals as a matter of social policy. OK. Those are real subsidies, but they are completely irrelevant to any discussion of taxes and subsidies on fossil fuels in the West.
Renewables, on the other hand, benefit from both direct and indirect subsidies, payable by both tax-payers and energy consumers. And those subsidies, direct and indirect, are real. And expensive.
They include payments to landowners who install wind turbines, and to householders and others who install solar panels. Feed-in tariffs. Renewable obligation certificates. “Capacity Payments” to those who provide gas-fired capacity as back-up to intermittent renewables (without which their gas-fired plants, run intermittently, would not be economically viable). Then there’s George Osborne’s “Carbon Floor Price”. This is not a direct subsidy – but it is a device to force up the price of energy and thus provide more pricing headroom for renewables. And the EU’s ETS (Emissions Trading Scheme). By allowing renewables to be competitive at a higher price, these have precisely the same effect as a subsidy, and are paid for by electricity consumers.
So how much is the cost of all these direct and indirect subsidies in the UK? Of course in the face of such complexity, and with the uncertainty of longer-term predictions, we can do no better than an estimate. But according to the Renewable Energy Foundation, the cost of renewables subsidies over the period 2002 to 2030 will be around £100 billion. That’s a direct (and unnecessary) burden on our economy. And on our competitiveness.
As former EU Industry Commissioner Antonio Tajani famously said (and I love to quote him) “We are creating an industrial massacre in Europe”. Indeed we are. And it’s time to stop doing so.