BNEF report: Governments spend much more on subsidizing fossil fuels than renewables

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New research issued by Bloomberg New Energy Finance (BNEF) shows that governments are spending much more on subsidizing dirty forms of energy than on solar, wind, other renewable energies, and biofuels. The report reveals that support for cleaner sources is dwarfed by the help that the petroleum, coal, and other fossil-fuel sectors receive.

Governments provided approximately $43 billion-$46 billion to renewable energy and biofuels technologies, projects, and companies in 2009, according to BNEF’s preliminary analysis—about 8% of the $557 billion spent on subsidizing fossil fuels in 2008 reported by the International Energy Agency in June.

The renewables/biofuels total factors in the cost of feed-in-tariffs, renewable energy credits or certificates, tax credits, cash grants, and other direct subsidies, but does not include more upstream support, such as subsidies to corn farmers to grow feedstock for use in ethanol plants nor does it include value transfer from carbon cap-and-trade schemes.

“One of the reasons the clean energy sector is starved of funding is because mainstream investors worry that renewable energy only works with direct government support,” said Michael Liebreich, chief executive of BNEF.

“Setting aside the fact that in many cases clean energy competes on its own merits–for instance in the case of well-situated wind farms and Brazilian sugar-cane ethanol–this analysis shows that the global direct subsidy for fossil fuels is around ten times the subsidy for renewable,” he continued. “And that is without taking into account the enormous security and public health costs of fossil fuels, as well as the appalling pollution catastrophes on the Gulf Coast, the Niger Delta, and elsewhere.”

The United States may be the top country in providing direct subsidies for clean energy, with an estimated $18.2 billion spent in 2009, according to BNEF’s preliminary analysis. About 40% of this amount supported the domestic biofuels sector, with the remainder allocated for renewables. The federal stimulus program, including the Treasury Department’s $3.8 billion in support for clean energy projects, played a key role.

China provided approximately $2 billion in direct subsidies, according to the analysis, although this figure is deceptive since much crucial support for clean energy in the country comes as low-interest loans from state-owned banks. The Beijing government has also strongly encouraged state-run power generators and grid companies to support renewables.

Some $19.5 billion of the total spent in 2009 came in the form of feed-in-tariffs subsidizing the purchase of clean electricity in Europe. Of that amount, Germany’s ratepayers paid out an estimated $9.6 billion last year, reflecting the prodigious rate of PV and other system installations in the country.

BNEF believes that there are two main reasons that the gap between what governments spend on subsidizing fossil fuels and clean energy should narrow considerably in 2010.

First, support for renewables and biofuels will accelerate, as disbursement of the $188 billion allocated in clean energy stimulus funds accelerates.

Second, the amounts that China and other governments spend to keep fossil fuel prices artificially low for consumers has dropped, since oil prices retreated from their mid-2008 peaks. Less government support is necessary to make these dirty sources of energy more affordable, according to BNEF.

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