Renewable Energy and Subsidies

A letter in today’s N & O argues that fossil fuels account for 87 percent of the energy consumed in the world and received 12 times the subsidies of renewable energy sources.  It isn’t clear from the letter whether the subsidies discussed only focus on the subsidies the U.S. provides or subsidies from all nations.

The writer argues: “Just imagine how huge that market [not clear what market] could be if renewable energies were subsidized at even half the level as fossil fuels.”  It is unclear what point is being made because it isn’t clear what market is being referred to.

Regardless, I want to clarify that at least in the U.S., renewable energy sources receive far more in subsidies than fossil fuel sources.

The Energy Information Administration (EIA) just released data on subsidies for energy sources (see Table ES2).

The following are total FY 2010 subsidies (in 2010 dollars) for fossil fuels compared to renewable sources:

Fossil Fuels

Coal: $1.358 billion
Natural Gas and Petroleum Liquids: $2.820 billion

Total: $4.178 billion

Renewable Energy

Total Renewables: $14.674 billion

In total dollars, renewable sources received 78 percent of the total subsidies.  If I include nuclear power and ignore the letter writer’s comparison of fossil fuels to renewable energy only, the numbers change some if I am comparing renewables to fossil fuels and nuclear power.

Nuclear received $2.499 billion in subsidies.  Renewable sources would still account for 69 percent of the subsidies.

Comparing total subsidies though is a misleading statistic and doesn’t truly capture how much money is really going to renewable energy sources.  If fossil fuels really did receive 12 times the subsidies in total dollar terms, that would still mean renewable energy sources are receiving far more than fossil fuel sources.

We need to look at subsidies per megawatt hour.  For electricity generation only, the Institute for Energy Research took the EIA data for subsidies and EIA’s generation data for energy sources to get the cost per megawatt hour (2010 dollars).

Here’s what they found:

Natural Gas and petroleum liquids: $0.64
Coal: $0.64
Hydropower: $0.82
Nuclear: $3.14
Geothermal: $12.85
Wind: $56.29
Solar Not-to-Scale: $775.64

Compared to coal and natural gas, solar power is being subsidized 88 times more than those sources and solar is being subsidized 1,212 times more than those sources.  Yes, that’s 1,212.

Hydropower, a form of renewable energy, doesn’t receive an excessive amount of subsidies (and is actually a reliable source of electricity).  The bad news is hydropower is generally opposed by environmental groups (which is probably why the subsidies are low).

Reader Comments

  • Roy Cordato

    While focusing on the per megawatt hour measure is accurate, the real comparative measure should not be subsidies but net subsidies. That is subsidies minus penalties. Invoking economics what needs to be done is to look at all policies that shift the supply curve of the particular energy form to the right (subsidies) and all policies that shift it to the left (taxes and penalties) and subtract one from the other. For fossil fuels the tax penalty side of the ledger would have to include all energy and gasoline taxes, environmental regulations on the burning and mining of coal, all restrictions on drilling for oil and natural gas in the ANWR and off shore, etc. It would not surprise me at all if we discover that when all of these penalty costs were subtracted out from the subsidies the resulting number would be negative. That is, for fossil fuels the penalties outweigh the subsidies. Again from the point of view of economics the supply curve of various fossil fuels would be to the left of where it would be in a market free of all subsidies or penalties, i.e. a free market.