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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.

Related Articles:

Doubling Renewable Energy will Save Money & Avoid Climate Catastrophe, says IRENA

IRENA | 5 Jun 2014

A 36% renewable energy in the global energy mix is possible, affordable and helps mitigate climate change

The world faces an important energy choice, according to a new report launched by the International Renewable Energy Agency in New York today. “REmap 2030” says that scaling-up renewable energy to 36% of the world’s total final energy consumption by 2030 is possible, affordable and will keep the world on a trajectory consistent with a CO2 level of 450 ppm, the widely accepted threshold to limit global temperature increase to two degrees Celsius above pre-industrial levels by 2100.

The report demonstrates that the investment cost for this global expansion of renewable energy is offset by savings of up to $740 billion per year on costs associated with pollution from fossil fuels.

Image courtesy of IRENA
Image courtesy of IRENA

The central policy question is this: What energy sources do we want to invest in?

Our data shows that renewable energy can help avert catastrophic climate change and save the world money, if all costs are considered,” said Adnan Z. Amin, Director-General of IRENA, in New York.

In answering this question, ‘REmap 2030’ makes a clear case for renewables. It shows the transition is affordable based on existing technologies, and that the benefits go well beyond the positive climate impact.

Countries today face a clear choice for a sustainable energy future.

Doubling renewable energy to 36% of global energy consumption will reduce the global demand for oil and gas by approximately 15% and for coal by 26%, cutting energy-related pollution and adverse health effects as well as increasing energy security for countries dependent on energy imports. It would also create a net gain of nearly one million jobs by 2030.

Image courtesy of IRENA
Image courtesy of IRENA

We can double the renewable energy share in the global energy mix, but we are not on that path now.

To realize the world’s renewable energy potential, all governments need to step up their efforts. We need to act now. — Dolf Gielen, Director of IRENA’s Innovation and Technology Centre, added.

IRENA recommends focusing on five key areas:

planning realistic but ambitious transition pathways; creating enabling business environments; managing knowledge of technology options and their deployment; ensuring smooth integration of renewables into the existing infrastructure; and unleashing innovation.

“REmap 2030” builds on the analysis of the energy requirements in 26 countries that account for 75% of global total final energy consumption. IRENA collaborated with countries and research institutions in the development of the report, which derives its objective from the United Nations Secretary General’s Sustainable Energy for All (SE4ALL) initiative. The report was launched today at the SE4ALL Forum at the United Nations Headquarters.

To download the full report, factsheets and other materials visit  www.irena.org/REmap

Global Fossil Fuel Subsidies At Record Highs

Originally published on DeSmogBlog by Ben Jervey.

Global Fossil Fuel Energy Consumption
Global Fossil Fuel Energy Consumption

The exact worth of massive global fossil fuel subsidies is incredibly hard to figure. There’s no real consistency in the definitions of subsidies, or how they should be calculated. As a result, estimates of global subsidy support for fossil fuels vary widely.

According to a new analysis by the Worldwatch Institute, these estimates range from $523 billion to over $1.9 trillion, depending on what is considered a “subsidy” and how exactly they are tallied.

Worldwatch Institute research fellow Philipp Tagwerker, who authored the brief, explains:

The lack of a clear definition of “subsidy” makes it hard to compare the different methods used to value support for fossil fuels, but the varying approaches nevertheless illustrate global trends. Fossil fuel subsidies declined in 2009, increased in 2010, and then in 2011 reached almost the same level as in 2008. The decrease in subsidies was due almost entirely to fluctuations in fuel prices rather than to policy changes.

In other words, though the estimates vary widely, they all agree that fossil fuel subsidies are back up to the record levels they were at in 2008, before the financial crisis caused a temporary dip. So while world leaders, including President Obama, talk about ending subsidies that benefit one of the world’s richest industries, there hasn’t been any actual reduction.

Why such difficulty calculating the subsidies? For starters, subsidies typically fall into two broadly different categories: production subsidies and consumption subsidies. Production subsidies are what you think of when you hear about special tax rates for oil companies or grants or loan guarantees to “clean coal” projects. Basically, they include anything that lowers the cost of energy production — through tax advantages, loan assistance, grants, or anything else.

Consumption subsidies refer to any financial mechanisms that lower the cost of energy for the end consumers. Think of the artificially low gasoline prices in Venezuela, or even something such as tax breaks for home heating fuel.

According to Tagwerker, production subsidies are most common in wealthier, industrialized countries, while consumption subsidies are more common in developing countries with populations struggling to afford fossil fuels.

The $523 billion number above — standing as the bottom boundary of the range of global fossil fuel subsidies — represents only the consumption subsidies for coal, electricity, oil and, natural gas in 38 developing countries, as estimated by the International Energy Agency (IEA). It doesn’t include any production subsidies at all.

Production subsidies are often quoted at $100 billion a year, a number that comes from a June 2010 report to the G-20 leaders from the Organisation for Economic Co-operation and Development (OECD), the IEA, the World Bank, and the Organization of the Petroleum Exporting Countries (OPEC). But that doesn’t include so-called “support measures” like:

  • export credit agencies (estimated at $50-100 billion annually)
  • cost of securing fossil fuel shipping routes (estimated at $20-500 billion/year)

Then there’s the issue of externalities. Tagwerker argues that external costs — like those associated with resource scarcity, environmental degradation, and human health — should be considered in subsidy calculations, as their absence artificially lowers the true cost of fossil fuel energy.

“Without factoring in such considerations, renewable subsidies cost between 1.7¢ and 15¢ per kilowatt-hour (kWh), higher than the estimated 0.1–0.7¢ per kWh for fossil fuels,” writes Tagwerker. “If externalities were included, however, estimates indicate fossil fuels would cost 23.8¢ more per kWh, while renewables would cost around 0.5¢ more per kWh.”

A recent report by the International Monetary Fund (IMF) took a unique approach to subsidy calculations, lumping them into pre-tax and post-tax groupings rather than production and consumption.

The IMF then tacked on a modest $25-per-ton carbon tax to capture the external costs of climate pollution. After tallying up all the various subsidies, the IMF came up with a whopping $1.9 trillion every year, or roughly 2.5-percent of the global GDP in 2012.

Finally, Tagwerker considers the entire subsidy through the lens of climate pollution. “From an emissions perspective, 15 percent of global carbon dioxide emissions receive $110 per ton in support, while only 8 percent are subject to a carbon price, effectively nullifying carbon market contributions as a measure to reduce emissions.”

Image Credit: Subsidies via Shutterstock.

This article, Fossil Fuel Subsidies Are Back Up To 2008 Levels, is syndicated from Clean Technica and is posted here with permission.

About the Author

The DeSmogBlog ProjectDeSmog Blog The DeSmogBlog Project began in January 2006 and quickly became the world’s number one source for accurate, fact based information regarding global warming misinformation campaigns. TIME Magazine named DeSmogBlog in its “25 Best Blogs of 2011” list. Our articles and stories are routinely highlighted in the world’s most popular news outlets and blogs: New York Times DotEarth, Huffington Post, Daily Kos, ThinkProgress, and Treehugger, to name a few. DeSmogBlog has won the Canadian Public Relation Society’s Leadership in Communication award, and was voted Canada’s “Best Group Blog” by their peers.

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