All subsidies are equal, but some are more equal than others

all-animals-are-equal

When looking for more information in previous post, I found a lot of information on the advantages, but even more about the disadvantages, of those alleged “fossil fuel subsidies”. I just copy/pasted them below, some are obviously related or very close to each other. Here goes:

    The advantages:

  • avoid inflation
  • shield citizens from the pain of price increases in global energy markets
  • expect and demand that their national resource be made available to them at cheap prices
  • an easy means to distribute state benefits to the citizens without the need for complex administrative capabilities and income testing
  • believed to help alleviate poverty by making energy economically accessible to the poor
  • promote industrialization
  • help generate employment opportunities
  • manage inflation
  • could help deter potential protests.
    The disadvantages:

  • are expensive; they eat up national budgets
  • benefits end up going mostly to the richest citizens
  • crowd out more productive government spending on education or infrastructure and reduce energy efficiency
  • mess with the law of supply and demand
  • discouraging investment in both alternative energy and fossil fuel exploration
  • are an inefficient means to alleviate energy poverty
  • economic inefficiency
  • adverse impacts on social equity
  • high fiscal cost for the government.

Most claimed that the disadvantages outweigh the advantages. Okay, IF the issues are actually subsidies (and not just an artifact of the Price gap approach), then I basically can agree with all of them, pro and contra.

But I do recognize these disadvantages. They are ridiculously close to the disadvantages of renewables subsidies. To my humble opinion the disadvantages for fossil fuel subsidies also apply to renewables subsidy.

For example, the subsidies of renewables made energy much more expensive and energy poverty is on the increase. This is only the beginning. In 2012 the Minister froze the energy prices, so power companies could not charge more to the costumer. They did swallow all the extra costs themselves. Until now. But this will be undone next year and the expectation is that prices will then rise with 30% to compensate for the loss these companies had since the rule was introduced. If the price increase until 2012 already had a negative effect, then wait until the prices are free again and power companies are starting to recuperate what they had to pay until now.

In the meanwhile the benefits end up going mostly to the richest citizens. In our little country it went to those who could free up the money to invest in renewables and harvest the subsidies.

Crowd out more productive government spending is not hard to understand. If a billion euro go to the aid of the renewables that are not economically viable, this means less budget for other issues. As long as wind and solar are seen as the only solution to our energy problem, the money will go to intermittent power production.

At first it seems a bit counterintuitive, but subsidizing renewables discourages investment in well needed technology, even if they are necessary to make intermittent energy to work in a continuous system. Even Agoria realized that the current subsidizing of intermittent energy sources discourages investments on storage of energy when production exceeds demand.

No doubt that it messes with the law of supply and demand. Subsidies on renewables made other forms of power generation uneconomically, therefor nobody wanted to do necessary investments in replacing old power stations that should be taken out of use. This meant that the most needed new fast cycling gas turbines (needed to counteract the intermittent nature of the renewables) wouldn’t be build and our country stayed with its outdated power stations. Which meant a danger to our power supply in the near future and, this somehow seemed to come as a surprise, more emissions… In the end they will be build eventually, but it was a long road to get there and there was a lot of resistance. Yet, they had no other choice. The power generation infrastructure is old and there is a desperate need for new plants to replace older ones.

But remember, it was desire of the International Energy Agency to use the saved money to “invest” in renewables. None of the two subsidies makes much sense. Apparently the IEA find it inappropriate that fossil fuel producing countries make their fossil fuels available to their own citizens at a more fair price than the international market price, yet they have no problem advocating uneconomic and inefficient forms of energy which will make energy more expensive and less reliable for their citizens…

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