Energy subsidies: renewables, fossil fuels or nuclear?

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Think of what you have done today and the chances are this required energy, most likely produced by easy access to cheap fossil fuels. These fuels will not run out any time soon, but they are finite, increasingly acknowledged to be influencing weather patterns and will become more expensive. So it makes sense to develop a diverse energy supply.

Supporting renewable energy is necessary yet criticised by some on economic grounds. But how does investment in renewables compare with financial support for fossil fuel production? And how much do we pay for our nuclear energy legacy or spend on tidying up redundant open cast coal mines?

These were some of the questions investigated by a UK Government enquiry during 2013. The Environmental Audit Committee reviewed what should constitute ‘subsidy’, the extent of energy subsidies in the UK for nuclear energy, fossil fuel energy and renewables, and what the Government should be doing to identify and eliminate those subsidies which are — using the UN’s terminology — “harmful”.

Not an easy task as there is confusion about what can be defined as an actual “energy subsidy”.
Figures produced for the enquiry tried to address this challenge.

Results of the subsidy investigation

Analysis for the enquiry revealed:

  • An estimate of total annual fossil fuel consumer and producer support in the UK of just over £7 billion
  • The nuclear hangover from power stations operating in past decades is currently requiring over £2bn a year in producer support and the Nuclear Decommissioning Authority has to deal with liabilities estimated to be at least £50bn
  • Producer support of £3 billion targeted at renewable energy technologies
  • Recognising they have long lead in times and high research and development costs helps to justify support for emerging technologies such as offshore wind, wave and tidal power. Indeed this is recognised as the “infant industry” argument. But renewables are not alone in receiving support – clearly fossil fuels and nuclear still receive substantial government subsidies.

The Public and Accounts Committee found that clean-up costs at the Sellafield nuclear power plant have risen to an astonishing £70 billion, with the possibility that costs will rise further.

Scotland has two nuclear power plants at Hunterston B and Torness. The plants at Hunterston A and Chapelcross shut down in 1990 and 2004. Hunterston B was set to close in 2011, but had its cycle extended until 2016. EDF energy say it could operate until 2023. Torness is expected to operate until 2023. The Scottish Government 2030 electricity production figures do not include any generation from new nuclear plants.

According to research by the OECD, the UK provided £4.3 billion of combined subsidy to consumers and producers of gas, petroleum and coal in 2011. This is predominantly due to reduced VAT for fuel and power. A post-tax analysis within the International Monetary Fund identified ¢10.9 billion of subsidy. (see Table 1 in ODI report)

Conclusion

So renewable energy is not the only form of energy production receiving support. However, it is currently the most visibly supported form of energy production, given the rapid expansion of the sector and an increase in political discussion. If we are to have a sensible debate about Scotland’s future energy supply, it is only fair that other forms of energy production be open to equal scrutiny.

SOURCE: Business for Scotland, April 15th 2014: http://www.businessforscotland.co.uk/energy-subsidies-renewables-fossil-...