Fossil Fuel Subsidies Fall in Gain for Renewables
Countries from Mexico to Germany and Malaysia are increasingly taking advantage of cheap oil by trimming fossil-fuel subsidies, easing the way for renewable power that can help the environment, according to the chief economist of the International Energy Agency.
With the global cost of crude cut by more than half, Fatih Birol said the IEA has scrapped a forecast that had subsidies reaching $660 billion by 2020. In the group’s latest report, fossil fuel producers were paid $548 billion in 2013, a $26.5 billion decline that was the first drop in four years, Bloomberg reported.
At least 27 nations are decreasing or ending the subsidies that hold down costs for fuels used to generate electricity, including coal and natural gas, the IEA reported in November. That’s adding momentum to global efforts to limit greenhouse gases by increasing the use of clean energy.
“In the absence of subsidies, all of the main renewable energy technologies would be competitive with oil-fired plants,” Birol said.
Since gasoline prices are often linked to oil, lower oil prices are allowing politicians even in producing nations such as Iran, Angola and Indonesia to cut payments while limiting the wrath of consumers. Eventually, that could help bring costs for renewable energy, including solar and wind power, to parity with fossil fuels.
While lower oil prices may seem like a hindrance to sales of renewables, local and national incentives have generally insulated the clean energy industry from market fluctuations. By reducing fossil fuel subsidies, governments are giving solar and wind power a level playing field on cost at a time when their popularity is growing in response to global warming.
Cuts in subsidies started in 2013 and have gathered pace since. Iran and Angola are among the nations that have boosted state-controlled gasoline prices, while Indonesia raised the cost of liquid petroleum gas or propane at least twice last year, according to the IEA. India deregulated diesel costs, and Ghana abolished fuel subsidies last year.
Scaling back fossil fuels support will benefit low-carbon sources such as solar and wind, especially in nations where power grids aren’t fully developed. In the Middle East, for instance, the IEA says a third of all electricity is generated using subsidized oil, absorbing almost 2 million barrels a day, or about 7 percent of the output of the Organization of Petroleum Exporting Countries. Renewable subsidies rose by $11 billion to a record $96.5 billion in 2013, the same year that saw fossil fuel subsidies fall for the first time in four years, according to the IEA.
The shift is sending ripples across the industry. Oil and gas-exporting nations face plummeting income and budget holes, while consuming nations have extra money they can use to invest in cleaner economic growth.
Nations that have or plan to cut subsidies include Germany, Morocco, Mexico, Egypt and Malaysia. Morocco, which imports all its oil, is seeking to phase out diesel subsidies this year. Mexico raised fuel prices 1.9 percent and may seek further increases, El Universal newspaper reported Jan. 2. Egypt lifted gasoline and electricity prices last year while Malaysia boosted the cost of both motor fuels and electricity.