Are fossil fuels subsidised more than renewables?


The International Energy Agency made the news with the headline claim that fossil fuels attract six times the subsidy of renewable energy. Inevitably, the headline was picked up and repackaged by most NGOs, trade bodies and commentators into a simple message - big oil is dipping our pockets to make a fast buck at the expense of clean energy.

However, like most headlines, when unpacked the reality is somewhat different. For example, according to the REN21 report, in 2010 renewable energy accounted for a little over 15% of global energy consumption, compared to 80% for fossil fuels. However, approximately half of that renewable consumption was traditional biomass, the global poor burning wood and animal waste with appalling health impacts. Discounting long-standing hydro and (mostly) Chinese solar water heaters, new renewables such as wind and solar PV accounted for less than 1% of global energy consumption, as did biofuels. So while it’s claimed that fossil fuels attract six times the subsidy of renewables, fossil fuels generate not far off 80 times more energy than heavily subsidised new renewables. Per unit of energy actually consumed then, renewables appear to attract subsidy over 10 times greater than fossil fuels.

But of course energy dense fossil fuels don’t attract direct production subsidy, they create genuine wealth, both directly through driving the economy, and indirectly through taxation. What is often seen as subsidy is in fact tax relief in oil rich states depressing the local price of fuel to share sovereign wealth with their populace, and developing nations depressing the price of fuel to support farmers. So if we want to end fossil fuel tax relief, it will be the poor who end up paying the most.

To be clear, the growth of new renewable energy has been driven solely by political targets and involuntary consumer support through direct production subsidy. If we are genuinely interested in socially progressive low cost energy and environmentally progressive clean energy, we need to deal in inconvenient truths measured in Joules and Watts, not creative accounting. Most importantly, we need clean energy that’s cheaper than coal. And yet the two technologies which can displace coal at scale, nuclear and gas, are both belligerently opposed by the very NGOs who demand firm action on climate change. So yes, let’s create a level playing field for clean energy in all its forms, let’s invest in basic R&D, and commercial scale technology demonstrators, but let’s not allow NGOs to keep one hand tied behind our backs.