Energy subsidies are measures that keep prices for customers below market levels, or for suppliers above market levels, or reduce costs for customers and suppliers.[OECD, 1998] Energy subsidies may be direct cash transfers to suppliers, customers, or related bodies, as well as indirect support mechanisms, such as and Tax refund, price controls, trade restrictions, and limits on market access.
During FY 2016–22, most US federal subsidies were for renewable energy producers (primarily biofuels, wind, and solar), low-income households, and energy-efficiency improvements. During FY 2016–22, nearly half (46%) of federal energy subsidies were associated with renewable energy, and 35% were associated with energy end uses. Federal support for renewable energy of all types more than doubled, from $7.4 billion in FY 2016 to $15.6 billion in FY 2022.[Data source: U.S. Energy Information Administration, Federal Financial Interventions and Subsidies in Energy in Fiscal Years 2016–2022, Table 1 and Table A3, DOE, Department of Energy.]
The International Renewable Energy Agency tracked some $634 billion in energy-sector subsidies in 2020, and found that around 70% were fossil fuel subsidies. About 20% went to Renewable power, 6% to and just over 3% to Nuclear power.
Overview of all sources of energy
If governments choose to subsidize one particular source of energy more than another, that choice can impact the environment.
That distinguishing factor informs the below discussion on all energy subsidies of all sources of energy in general.
Main arguments for energy subsidies are:
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Security of supply – subsidies are used to ensure adequate domestic supply by supporting indigenous fuel production in order to reduce import dependency, or supporting overseas activities of national energy companies, or to secure the electricity grid.
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Environmental and health improvement – subsidies are used to improve health by reducing air pollution, and to fulfill international climate pledges.
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Economic benefits – subsidies in the form of reduced prices are used to stimulate particular economic sectors or segments of the population, e.g. alleviating poverty and increasing access to energy in developing countries. With regards to fossil fuel prices in particular, Ian Parry, the lead author of a 2021 IMF report said, "Some countries are reluctant to raise energy prices because they think it will harm the poor. But holding down fossil fuel prices is a highly inefficient way to help the poor, because most of the benefits accrue to wealthier households. It would be better to target resources towards helping poor and vulnerable people directly."
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Employment and social benefits – subsidies are used to maintain employment, especially in periods of economic transition.
Main arguments against energy subsidies are:
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Some energy subsidies, such as the fossil fuel subsidies (oil, coal, and gas subsidies), counter the goal of sustainable development, as they may lead to higher consumption and waste, exacerbating the harmful effects of energy use on the environment, create a heavy burden on government finances and weaken the potential for economies to grow, undermine private and public investment in the energy sector.
[ Also, most benefits from fossil fuel subsidies in developing countries go to the richest 20% of households.]
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Impede the expansion of distribution networks and the development of more environmentally benign energy technologies, and do not always help the people that need them most.
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The study conducted by the World Bank finds that subsidies to the large commercial businesses that dominate the energy sector are not justified. However, under some circumstances it is reasonable to use subsidies to promote access to energy for the poorest households in developing countries. Energy subsidies should encourage access to the modern energy sources, not to cover operating costs of companies.
Types of energy subsidies are below. ("Fossil-fuel subsidies generally take two forms. Production subsidies...and...consumption subsidies."
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Direct financial transfers – grants to suppliers; grants to customers; low-interest or preferential loans to suppliers.
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Preferential tax treatments – rebates or exemption on royalties, duties, supplier levies and tariffs; tax credit; accelerated depreciation allowances on energy supply equipment.
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Trade restrictions – quota, technical restrictions and .
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Energy-related services provided by government at less than full cost – direct investment in energy infrastructure; public research and development.
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Regulation of the energy sector – demand guarantees and mandated deployment rates; price controls; market-access restrictions; preferential planning consent and controls over access to resources.
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Failure to impose – environmental externality costs; energy security risks and price volatility costs.
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Depletion Allowance – allows a deduction from gross income of up to ~27% for the depletion of exhaustible resources (oil, gas, minerals).
Overall, energy subsidies require coordination and integrated implementation, especially in light of globalization and increased interconnectedness of energy policies, thus their regulation at the World Trade Organization is often seen as necessary.[ and ][Farah, Paolo Davide and Cima, Elena, WTO and Renewable Energy: Lessons from the Case Law (December 15, 2015). 49 JOURNAL OF WORLD TRADE 6, Kluwer Law International, , December 2015, pp. 1103 – 1116. Available at SSRN: http://ssrn.com/abstract=2704453
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Support for new technology
Early support of
solar power by the United States and Germany greatly helped renewable energy commercialization to reduce greenhouse gas emissions worldwide, but may not have helped local manufacturing.
Support for
nuclear fusion continues, although it is not expected to be commercially viable in time to contribute to countries
net zero targets.
research is also supported.
Fossil fuel subsidies
See also
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Building-integrated photovoltaics
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Corporate welfare
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Feed-in tariff
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Financial incentives for photovoltaics
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Fossil fuel subsidies
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Gasoline subsidies
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Government subsidies
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Renewable Energy Certificates
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Renewable energy commercialization
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Renewable energy payments
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Bibliography
External links
