Alter Existing Subsidies To Support Environmental Conservation

congress-subsidy-windmill-krossbowOne of the big reasons that some investors may still be leery of alternative energy systems is that they rely on government subsidies for much of their profitability. "Governments could lift these subsidies at any time," they argue, "and then my investment would be much less profitable."

However, recent research is showing that far more subsidies flow to conventional energy sources, particularly fossil fuels, than to more planet-friendly alternatives, such as wind, solar power, and biofuels. This underlines the possibility, and the strategy, of phasing out fossil fuels and phasing in more modern alternatives simply by restructuring the flow of government subsidies.

For example, according to a report from Bloomberg New Energy Finance, global subsidies for renewable energy sources, in the form of such benefits as tax credits, guaranteed electricity prices, and alternative energy credits, amounted to between $43 billion and $46 billion during 2008.

That sounds like a lot, until you realize that fossil fuels receive something like $557 billion each year in various subsidies, tax breaks, incentive payments, discounts, and other profit-boosting arrangements, according to the International Energy Agency. Other sources disagree. "The magnitude of fossil fuel subsidies to producers and consumers could reach over 700 billion dollars a year," said Steven Stone, chief of the UN Environment Programme's (UNEP) economics and trade branch.

In a world that is literally choking on various greenhouse gases and carbon emissions, and in which the fossil fuel industry as a whole is hugely profitable, this allocation of government resources and favoritism makes little sense.

Of course, some governmental actions are already being taken in favor of alternative energy sources, including efforts to boost the amount of power derived from crops, wind, solar, and geothermal sources. In addition, the Group of 20 nations has recently renewed its commitment to phase out fossil fuel subsidies, but has set no target date.

Obviously, more needs to be done.

WTO Deputy Director General Harsha Vardhana Singh has recently stated that more thought must be given to establishing and enforcing restrictions on government subsidies for fossil fuels that pollute and contribut to global warming.

"Fossil fuel subsidy reform is undoubtedly one of the major tools," he said, "in the hands of the international community to fight climate change. Reflections on the link between trade and climate change, and on the eventual role of the WTO rulebook on an issue such as fossil-fuel subsidies, must take place."

As one might expect, however, the companies now receiving government subsidies are not going to relinquish them amicably.

Even if they were willing to do so, subsidies now occupy such a wide range of direct and indirect influences on markets -- including tax breaks, credits, discounted access to leases and mineral rights, insurance subsidies and guarantees, and a variety of incentives for both producers and consumers -- that unwinding this structure will take time and could easily lead to unforeseen economic impacts.

However, everyone should realize that subsidies for alternative energy systems are not inherently "unfair," but actually constitute "business as usual."

What is more, such subsidies need not be temporary. Fossil fuels have enjoyed such subsidies for decades, and in most cases still do.

The choice is not simply whether or not to subsidize alternative energy, but whether or not to continue subsidizing an energy industry that is harming the planet and creating problems that will cost trillions and take generations to remedy.

More later ...

Photo credit: krossbow

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