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Energy Darwinism: The Case for a Level Playing Field

by John Brian Shannon | February 2, 2015

By now, we’re all aware of the threat to the well-being of life on this planet posed by our massive use of fossil fuels and the various ways we might attempt to reduce the rate of CO2 increase in our atmosphere.

The First Option: Economic Incentives to Lower Fossil Fuel Use

Disinvestment in Fossil Fuels (A) or Outright Elimination of Fossil Fuel Subsidies (B)

A) Divestment in fossil fuels is under discussion as one way to lower carbon emissions

The case for divestment generally flows along these lines; By making investment in fossil fuels seem unethical, investors will gradually move away from fossil fuels into other investments, leaving behind a smaller, but hardcore cohort of fossil fuel investors.

Resulting (in theory) in a gradual decline in the total global investment in fossil fuels, thereby lowering consumption and CO2 additions to the atmosphere. So the thinking goes.

It worked well in the case of tobacco, a few decades back. Over time, fewer people wanted their names or fund associated with the tobacco industry — so that the tobacco industry is now a shadow of its former self.

Interestingly, Solaris (a hybridized tobacco plant) is being grown and processed into biofuel to power South African Airways (SAA) jets. They expect all flights to be fully powered by tobacco biofuel within a few years, cutting their CO2 emissions in half. Read more about that here.

b) Another way to curtail carbon emissions is to completely remove fossil fuel subsidies from the equation

In 2014, the total global fossil fuel subsidy amounted to $548 billion dollars according to the IISD (International Institute for Sustainable Development) although it was projected to hit $600 billion before the oil price crash began in September. The global fossil fuel subsidy amount totalled $550 billion dollars in 2013. For 2012, it totalled $525 billion dollars. (These aren’t secret numbers, they’re easily viewed at the IEA and major news sites such as Reuters and Bloomberg)

Yes, removing those subsidies would do much to lower our carbon emissions as many oil and gas wells, pipelines, refineries and port facilities would suddenly become hugely uneconomic.

We don’t recognize them for the white elephants they are, because they are obscured by mountains of cash.

And there are powerful lobby groups dedicated to keeping those massive subsidies in place. Ergo, those subsidies likely aren’t going away, anytime soon.

The Second Option: Reducing our CO2 footprint via a carbon tax scheme

But for all of the talk… not much has happened.

The fossil fuel industry will spin this for decades, trying to get the world to come to contretemps on the *exact dollar amount* of fossil fuel damage to the environment. Long before any agreement is reached we will be as lobsters in a pot due to global warming.

And know that there are powerful lobby groups dedicated to keeping a carbon tax from ever seeing the light of day.

The Third Option: Levelling the Subsidy Playing Field

  • Continue fossil fuel subsidies at the same level – without any carbon tax.
  • Quickly ramp-up renewable energy subsidies to match existing fossil fuel subsidies.

Both divestment in fossil fuels and reducing fossil fuel subsidies attempt to lower our total CO2 emissions by (1) reducing fossil fuel industry revenues while (2) a carbon tax attempts to lower our total CO2 use/emissions by increasing spending for the fossil fuel industry

I prefer (3) a revenue-neutral and spending-neutral solution (from the oil company’s perspective) to lower our CO2 use/emissions.

So far, there are no (known) powerful fossil fuel lobby groups dedicated to preventing renewable energy from receiving the same annual subsidy levels as the fossil fuel industry.

Imagine how hypocritical the fossil fuel industry would look if it attempted to block renewable energy subsidies set to the same level as fossil fuel subsidies.

In 2014, renewable energy received 1/4 of the total global subsidy amount enjoyed by fossil fuel

Energy Darwinism - Global Energy Subsidies (2014, in billions USD)
Energy Darwinism – The Case for a Level Playing Field Subsidy Regime. Global Energy Subsidies 2014. (billions USD). Image courtesy of IISD.

Were governments to decide that renewable energy could receive the same global, annual subsidy as the fossil fuel industry, a number of things would begin to happen;

  • Say goodbye to high unemployment.
  • Say goodbye to the dirtiest fossil projects.
  • Immediate lowering of CO2 emissions.
  • Less imported foreign oil.
  • Cleaner air in cities.
  • Sharp decline in healthcare costs.
  • Democratization of energy through all socio-economic groups.

Summary

Even discounting the global externality cost of fossil fuel (which some commentators have placed at up to $2 trillion per year) the global, annual $548 billion fossil fuel subsidy promotes an unfair marketplace advantage.

But instead of punishing the fossil fuel industry for supplying us with reliable energy for decades (by taking away ‘their’ subsidies) or by placing on them the burden of a huge carbon tax (one that reflects the true cost of the fossil fuel externality) I suggest that we simply match the renewable energy subsidy to the fossil subsidy… and let both compete on a level playing field in the international marketplace.

Assuming a level playing field; May the best competitor win!

By matching renewable energy subsidies to fossil fuel subsidies, ‘Energy Darwinism’ will reward the better energy solution

My opinion is that renewable energy will win hands down and that we will exceed our clean air goals over time — and stop global warming in its tracks.

Not only that, but we will create hundreds of thousands of clean energy jobs and accrue other benefits during the transition to renewable energy. We will also lower healthcare spending, agricultural damage, and lower damage to steel and concrete infrastructure from acid rain.

In the best-case future: ‘Oil & Gas companies’ will simply become known as ‘Energy companies’

Such Energy Darwinism will reward investors that simply but profoundly migrate from fossil fuel energy stocks, to renewable energy stocks within the same energy company or group of energy companies.

At the advent of scheduled airline transportation nearly a century ago, the smart railway companies bought existing airlines (or created their own airlines) and kept their traditional investors and gained new ones.

Likewise, smart oil and gas companies, should now buy existing renewable energy companies (or create their own renewable energy companies) and keep their traditional investors and gain new ones.

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7 Comments

  1. Hi Aloysius,

    I agree completely with your statements.

    If I had a team of researchers to do a country-by-country analysis to show governments how renewable energy/electric vehicles could work for them at far less cost, that would be optimum.

    At least the word is out now that fossil fuels get 4x – 6x the subsidies (depending upon which study) that renewable energy gets.

    The article below has plenty of links that explain the magnitude of the problem — and much of the problem is about access to find out about ‘all fossil subsidies, all the time’
    http://priceofoil.org/fossil-fuel-subsidies/

    Fossil fuel subsidies in the U.S. range from $10.5 billion – $120 billion — again depending upon whom is doing the counting. And many more billions of U.S. fossil fuel subsidies are invisible, such as trillion dollar wars to protect foreign oilfields.

    Regarding Saudi Arabia, drivers there pay the equivalent of $.15 per litre (the equivalent of $.60 per US gallon) due to their massive fossil fuel subsidy regime,

    No matter how good electric cars are, it’s difficult to compete against massive subsidies like that.

    http://www.globalpetrolprices.com/Saudi-Arabia/gasoline_prices/

    My view on this; If the same level of subsidies existed for electric vehicles in Saudi Arabia there would be no competition at all — electric vehicles would win, hands down.

    Thank you for writing, and best regards, JBS

  2. A problem I have with this argument is that this $500 billion is not a monolithic subsidy that’s applied uniformly. Gasoline is highly taxed in Europe, but massively subsidised in the Middle East and some developing countries. There are different subsidies for different fuels at different stages of the production/consumption cycle and a variety of political motivations.

    I think international peer pressure and moralsuasion is vital. But, in the end drivers in Saudi Arabia, for example, will drive electric cars simply because they are better and more exciting cars, and because solar power is the cheapest form of power.

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