Fossil Fuel and Renewable Energy Subsidies on the Rise

A recent projection places the total value of conventional global fossil fuel subsidies between $775 billion and more than $1 trillion in 2012, depending on which supports are included in the calculation.1 In contrast, total subsidies for renewable energy stood at $66 billion in 2010, although that was a 10 percent increase from the previous year.2 Two thirds of these subsidies went to renewable electricity resources and the remaining third to biofuels.3

Although the total subsidies for renewable energy are significantly lower than those for fossil fuels, they are higher per kilowatt-hour if externalities are not included in the calculations. Estimates based on 2009 energy production numbers placed renewable energy subsidies between 1.7¢ and 15¢ per kilowatt-hour while subsidies for fossil fuels were estimated at around 0.1–0.7¢ per kWh.4 Unit subsidy costs for renewables are expected to decrease as technologies become more efficient and the prices of wholesale electricity and transport fuels rise.5

Globally negotiated efforts to reduce fossil fuel subsidies have been hindered by competing definitions of subsidies. Calculation methods also vary. The common price gap approach to calculating consumption subsidies uses the difference between the observed domestic prices of energy and the world market prices as an estimate of the impacts of a country’s policies on market prices.6 Some oil exporters, however, argue that production cost rather than market price should be used as the baseline.7 The difficulties in accurately measuring data are compounded by the lack of transparency among countries with regard to energy subsidies.8

Energy Subsidies Figure 1

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