For more than a decade, fossil fuel supporters have insisted that new
clean energy technologies like wind and solar are far “too
expensive” to replace our traditional fossil fuel dominated energy
industries. A recent report
published by the International Monetary Fund (IMF) has put a price on
the direct and indirect subsidies that support fossil fuels as a counter
argument to the renewables are “too expensive” message.
The
numbers are staggering. The expected subsidy for fossil fuels during
2015 is projected to be $5.3 TRILLION – for one year! This means that
approximately 6.5% of global gross domestic product (GDP) will be
dedicated in 2015 to just subsidizing our use of fossil fuels. Or as
The Guardian pointed out in its summary of the IMF report, taxpayers are paying $10 MILLION per minute globally in subsidies for fossil fuels.
The
idea that fossil fuels benefit from both direct and indirect subsidies
has been around for years, but analysis has generally been done in
pieces (some of it done very well – Nancy Pfund and Ben Healy at DBL
Investors published an excellent analysis
of direct subsidies in the U.S. a couple years back) or without
complete data robust enough to stand up to critique. The IMF report
looks at direct incentives, local pollution and public health effects,
climate changes, and a host of other costs to arrive at its projected
subsidy number.
IMF’s numbers are already being attacked. UK
climate economist Nicholas Stern questioned the report for vastly
underpricing the cost of climate change, and Brad Plummer at Vox
outlined some of the odd items that arguably shouldn’t have been included in the calculation.
Regardless of whether the IMF report gets to exactly the right number,
the report provides a very credible starting point to argue over the
right value to place on fossil fuel subsidies, and will be a baseline to
begin rethinking the right pace for our global transition to clean
energy.
According to the report, the largest subsidy will be for
coal, largely because of the enormously underpriced effects of emissions
and other environmental costs on public health and local resources –
although the global climate impact is very significant as well. A real
world demonstration of these costs can be seen in China right now with
its massive build-out of coal generation rapidly coming to a close and the nation making a hard pivot towards clean energy in the face of deteriorating air quality and spiraling health costs from pollution.
The
vast portion of the remaining fossil fuel subsidies will be to support
petroleum. More petroleum subsidies will be in the form of direct
supports, especially among oil producing countries, but the indirect
costs were again significant (and curiously the report seems to leave
out military costs dedicated to maintaining regular supply of crude to
global markets, which have been long identified as a very significant subsidy).
Governments
around the globe are struggling with the practical and economic
realities of an accelerating energy transition away from fossil fuels,
as well as the incredibly challenging politics surrounding these
markets. The presence of a well respected financial institution, like
the IMF, measuring the enormously ignored, but very real, costs of
fossil fuel use will be important in shaping these discussions.
This
report alone won’t end the constant claims that clean energy is “too
expensive.” There have been remarkable declines in the cost of wind and
solar power over the past decade. Add the breakthroughs in storage,
electrification of vehicles, and promises of economically competitive
new nuclear technologies (which will accelerate when investors have a
clear and accurate price target for these alternatives) and the pace of
global change could be revolutionary.
By putting hard data on the
real price of the energy status quo (a lesson being lived in real time
by Chinese authorities facing massive new costs from its overzealous
coal fleet expansion), the report allows us to seriously consider the
economic reality of the currently distorted and inaccurate marketplace.
A better baseline, even a remotely accurate one, combined with the
economic reality that clean energy has become stunningly more economic
over the past decade, should re-write the fundamentals of the discussion
about our energy future.
http://theenergycollective.com/eliashinckley/2233771/imf-just-destroyed-best-argument-against-clean-energy