Changing energy pathways means changing subsidy flows


At the end of 2016 the US federal government is set to revert the Investment Tax Credit (ITC) on renewable energy from 30% back to the pre-2006 level of 10%, and similar policies are in motion in many other countries around the world. Simultaneously, and without signs of change, estimates suggest that US provided $37.5bn in fossil fuel subsidies in 2014, including $21bn in production and exploration subsidies. Creating a situation in which taxpayers are supporting polluting energy in favour of clean energy.

The ITC was designed to encourage the use of certain sources of renewable energy, including solar energy. It is the most significant federal policy to support the development of green technology. Since its implementation, there has been an increase of over 4,000% in photovoltaic installations alone in the US. It is a policy that puts the US on a path towards a greener, more secure, energy supply, until 2017.

There is a basis for ITC reversion; the market like any market needs to be able to stand on its own two feet. Although, surely, environmental responsibility and rapid climate change should afford green technology more assistance, because whether you’re a staunch free market capitalist or a green, regulation happy socialist, climate change is affecting the world you live in. You’d have to have your head in the oil sands not to realise that we need to change our polluting ways to reduce the impact of an inevitable environmental crisis.

Matt Roberts, executive director the US-based Energy Storage Association, said that he would always favour market-based solutions over incentive-based ones. However, he said, there is a total lack of a market structure that puts value on non-polluting and potentially more efficient technologies over fossil fuels. “Whether you call it an incentive or whatever, where’s the value on clean energy? Whether it’s a tax on carbon or some other structure, it just doesn’t exist right now”.

Incentivising the renewables industry must be the logical route to reduce carbon emissions or, on the other side of that coin, heavier tax and regulation could be placed on polluting forms of power, in order to encourage the growth of clean energy. However, the situation we find ourselves in is one of reducing clean energy incentives, while sustaining vast federal support for the affluent and highly polluting fossil fuel industry.

In the US, estimates of annual fossil fuel subsidies range from $10bn to $52bn annually and don’t include costs borne by taxpayers related to the climate, local environment, and health impacts of the fossil fuel industry.

The Repeal Big Oil Tax Subsidies Act, sponsored by Senator Menendez was debated and defeated by the Senate for two years running, and would have eliminated $2.4bn in annual tax deductions for the five major oil companies: BP, Exxon, Chevron, Shell and ConocoPhillips.

President Obama has also proposed cutting certain subsidies to the oil and coal industries every year he’s been in office. The projections for savings have varied slightly each year but always hover around $4 billion annually. Congress has never even agreed to vote on any of them.

Internationally, governments provide up to $1-trillion in subsidies annually, G20 governments accounting for $452bn. Their continued support for fossil fuel production marries bad economics with potentially disastrous consequences for the climate. It is tantamount to governments allowing fossil fuel producers to undermine national climate commitments, while paying them for the privilege.

The highly publicised COP21 climate summit in Paris last week, amidst varying praise and criticism from the environmental lobby, ties the 195 participating nations to reducing carbon emissions and encouraging clean energy development. The unprecedented level of this international environmental agreement leaves many in the US renewables sector optimistic that the ITC will be extended. Be it the ITC or another platform, change will need to come about in this most illogical of policy situations.

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Monday, December 21st, 2015