Subsidies in the energy sector – setting the record straight

Last week it was reported that the newly-appointed Environment Secretary, Owen Paterson, remarked that wind developers should “stand on their own two feet” and that, “if you start having subsidies you end up with a Soviet-style system, where politicians make decisions that might actually be better made by the market.”

Many people, and it seems this includes Paterson, aren’t aware that subsidies have long been part of the energy sector. We started having subsidies for fossil fuels a long time ago, and we still have them today. So while it is true that renewable power generation does benefit from specific government support, it must be recognised that all forms of large scale energy technologies receive some kind of state support (in the form of subsidies, tax allowances, capital grants etc). And research has consistently shown that the subsidies for renewables are dwarfed in comparison.

If we had genuine transparency on what has been spent on energy historically it would show that subsidies for renewables are a drop in the ocean compared with what fossil fuel and nuclear energy have benefited from over the years. In 2011, the International Energy Agency (IEA) reported that renewables subsidies were $66 billion compared with subsidies for fossil fuels of $409 billion.

This data flies in the face of popular opinion that fossil fuels don’t receive any subsidy. The support given to oil, gas and coal rarely capture any attention, whereas every pound of renewable power subsidies are subject to highly critical political and media scrutiny.

Earlier this year, The Carbon Brief report examined if there had ever been a level energy playing field. It concluded that ‘whilst it may seem paradoxical, continued Government involvement on behalf of renewables may create more, not less, competition and could help to create something more closely resembling a free and fair market.’

The costs of wind are in the manufacture, construction and maintenance of the infrastructure. As the technology is developed and matures, the need for subsidy will decrease. Onshore wind is getting cheaper: the gap between onshore wind and gas-generated electricity costs has halved in just five years. The ‘fuel’ itself is free – and the UK has 40 percent of Europe's entire wind resource.  To borrow Paterson’s phrase its “a God-given” windfall that would help Britain solve its energy problems.” It’s a shame he wasn’t referring to wind.

Fossil fuel subsidies undermine the competitiveness of renewable fuels – like wave, wind, solar etc – which are essential to tackling climate change. The IEA has also reported that removing subsidies for coal, gas and oil could provide half of the carbon savings needed to stop dangerous levels of climate change. This is what should be grabbing our attention, not worrying about wind.