Energy and Global Warming News for March 9: Governments spend $500 billion a year to subsidize fossil fuels; U.S. cleantech outpaced by China

Governments estimated to spend $500 billion a year to subsidize fossil fuels

The world might be spending as much as $500 billion annually to subsidize fossil fuels, researchers working at the direction of President Obama and other leaders have found.

But a draft report of the study, obtained by E&E, shows a heavy emphasis on the financial assistance that developing countries give to make energy more affordable to poor consumers. Meanwhile, researchers were unable to come up with harder numbers for the more controversial tax breaks, research and development support, and other measures by which wealthy countries subsidize the production of fossil fuel energy.

Analysts familiar with the report said the next version is expected in April and a final report is due before the Group of 20 world leaders meets in Toronto in June. There, the G-20 leaders are expected to further a pledge from last year to phase out what they described as “inefficient fossil fuel subsidies that encourage wasteful consumption,” and to help reduce carbon emissions.

“Energy pricing, including subsidies, is at the heart of the sustainable development agenda,” researchers from the World Bank, International Energy Association, Organisation for Economic Co-operation and Development and Organization of Petroleum Exporting Countries wrote in the draft.

A ‘challenging agenda’ ahead

“Removal of energy subsidies could generate large budgetary and off budgetary savings, which could in turn be invested in more desirable uses, notably targeting the poor and increas[ing] access to energy services and better serving the climate change objectives,” the authors wrote.

Environmental groups widely laud those goals and have long pressed governments to redirect money that makes dirtier fuels artificially cheaper toward the development of renewable energy. But many also criticize what they see as an emphasis on consumer subsidies.

According to the G-20 draft, the most recent calculation of how much money industrialized countries spend to prop up fossil fuel production comes from a 1998 report. That $19 billion to $24 billion annual estimate has grown at least fourfold, analysts say.

The authors indicated that they intend to come up with new figures. But they also pointed out that the variety of tax breaks and other policies industrialized countries impose are harder to calculate than the relatively simple consumer subsidies. At the same time, experts noted, oil and gas lobbies also fight hard to keep the definitions of subsidies narrow, increasing the difficulties.

In a nod to the political firestorm that is likely to erupt when economists truly start to delve into producer subsidies, the authors wrote, “a challenging agenda ahead emerges including the agreement on a common methodology, as well as improved transparency and reporting.”

Opposition likely from oil companies and the poor

U.S. oil industry officials oppose the G-20 plan and argue that eliminating assistance to oil and gas threatens the ability of companies to invest in finding new sources of energy. Experts with the American Petroleum Institute argue that modifying taxes for oil and gas singles out those industries for harsher treatment than other sectors.

Meanwhile, the study points out that reducing consumer subsidies also won’t be easy. Enacted in many countries because of the escalating costs of energy, the assistance should be phased out over a period of time and in terms specific to each country, researchers recommended. Many nations also will need simultaneous new assistance, including cash transfers, to protect the poor.

The report also warns that removing fossil fuel subsidies in developing countries could lead to rising emissions in rich ones. That runs counter to a recent separate study from the International Monetary Fund that showed reducing assistance could cut global emissions 15 percent by 2050.

In selling the idea of cutting subsidies to the public, researchers advocated an early and sustained public relations campaign.

“Early publicity may prevent some groups from hiding their self-interest by making wild claims,” they argued. But, they added, “communication alone is unlikely to be sufficient, especially for the poor, for whom compensation packages can serve to protect them from hardship. … Amongst richer households, compensations can both buy support and deflect accusations that reforms are unjust.”

ENERGY POLICY: U.S. clean tech outpaced by China — Chu

STANFORD, Calif. — Energy Secretary Steven Chu stresses building America’s ability to compete against growing clean energy hubs abroad, but warns that a carbon cap is still the best way for the nation to spur innovation.

Returning to Stanford University, where he taught physics for 20 years, Chu said the federal government was embarking on a grand-scale effort to lower the cost of renewable and clean energy technology.

He painted a dire picture of other countries — mostly China — outstripping U.S. investments by a factor of 10.

“Our market share is 10 percent now on clean technology,” he said, ticking off fuel efficiency, general auto technology, energy transmission equipment and nuclear reactors as specific sectors where the United States is severely lacking.

“What’s China doing?” he asked. “Spending over $9 billion a month cleaning up and improving their energy efficiency. The state grid is spending $44 billion by 2012 and $88 billion by 2020 on transmission.”

He said he asked the head of the state grid how he convinced citizens that energy infrastructure was worth the investment. “He said, ‘Of course people don’t like money being taken out of their wallet, but we just tell them how important it is.’ It’s a different system,” Chu said. “I’d rather live here, but it does have its advantages.”

But in a capitalist economy, the biggest carrot, or stick, he conceded, will be a carbon cap. “I don’t know when we will be living in a carbon-constrained world; it may be 10 years from today, it may be five years,” he said. “I hope it’s five; I hope it’s two, but we’ve got to keep moving.”

Future U.S. prosperity ‘at risk’

Using the Manhattan Project analogy that environmentalists like former Vice President Al Gore have cited for years, Chu described a vision of three separate research efforts, at the university and commercial levels and in between. University-sponsored “Energy Frontier Research Centers,” which DOE established at 46 schools last year with $140 million in funding, are to work on the big questions of basic and advanced science, while multidisciplinary teams work on shorter-term research.

At the most urgent level, the U.S. Department of Energy’s Advanced Research Projects Agency-Energy will solve short-term, high-reward issues like improving the price of energy storage and ways to capture carbon, Chu said.

“America has the opportunity to lead the world in a new industrial revolution,” he said, adding that the risk of failure is commensurately scaled.

“We need to get people in the United States to skate to where the puck is going to be, not where it’s been,” he said. “If we hold off another five to 10 years, I think we will lose. The future prosperity of the United States is at risk.”

Making clean tech cheap, as well as green

It’s called clean technology’s “competitive conundrum”: how to get people to pay for cleaner energy when electricity produced from traditional sources like nuclear power, coal, or natural gas costs less. Today, several industry specialists plan to address that question at GoingGreen East, a clean technology conference designed to bring together executives from green technology companies with investors and other players.

Organizers at the online media firm AlwaysOn Network expect to draw 450 to 500 participants to the conference at the Four Seasons Hotel Boston by the time it ends tomorrow.

Hemant Taneja, a managing director at the Cambridge venture capital firm General Catalyst Partners, will sit on the panel discussing how to make sure emerging clean technologies are successful.

He said companies must have patience to create new technologies that may take years to bear fruit, but that will ultimately appeal more to eco-conscious consumers.

“We have to shoot for really, really disruptive things and we have to have the patience to wait for them to happen,” Taneja said. “Squeezing costs out of the existing solutions is not going to be competitive.”

The more renewable resources – wind turbines, solar panels, and fuel cells, for example – that are up and running, the more they will be widely used, and the cheaper the electricity they produce will become, industry insiders say.

Senate Bills Aim To Increase Energy Efficiency Nationwide

Two bills proposed in the US Senate could lead to major energy efficiency improvements nationwide.

Senators Jeff Merkley (D-Ore.) and Mark Pryor (D-Ark.) introduced legislation Thursday to promote the installation of energy-efficient renovations in commercial and multi-family residential buildings.

Dubbed “Building Star,” the program follows in the footsteps of the  Homestar program, unveiled last week by President Obama.

The senators said by utilizing rebates and low-interest loans, the Building Star program would leverage between two and three dollars in private investment for every federal dollar spent.

In addition to rebates to reduce the cost of energy-saving measures such as high-efficiency heating and improved insulation, “Building Star” will also extend low-interest financing options to small businesses and other building owners. Such financing arrangements help building owners with the upfront cost of a building renovation by letting them pay off the cost out of the savings on their energy bill.

EPA Piecing Together Regulatory Framework for Greenhouse Gas Rules

U.S. EPA has submitted the first piece of its suite of greenhouse gas rules to the White House for review, a signal that the agency is on schedule to finalize its first regulations to curb the heat-trapping emissions. Two bills proposed in the US Senate could lead to major energy efficiency improvements nationwide.

EPA sent to the White House Office of Management and Budget last Thursday its final reconsideration of the George W. Bush administration’s “Johnson memo,” a determination from former EPA Administrator Stephen Johnson about when the government must begin to regulate industrial facilities’ greenhouse gas emissions. That decision is seen as a critical policy to have in place before the agency issues its final greenhouse gas rule for tailpipe emissions (Greenwire, March 5).

The agency is expected to finalize the auto standards — slated to come in tandem with the Transportation Department’s corporate average fuel efficiency (CAFE) standards — by March 31. Once greenhouse gases are “subject to regulation” under the Clean Air Act, the agency will also be required to regulate stationary sources of the emissions.

But first, EPA must outline in its reconsideration of the Johnson memo when the gases will technically become “subject to regulation.”

IMF Suggests How To Raise Climate Change Funds

The head of the International Monetary Fund on Monday proposed a plan for the world’s governments to pool together to raise money needed to adapt to climate change, a rare step for an organization that normally does not develop environmental policies. MF Managing Director Dominique Strauss-Kahn said the Fund is concerned about the huge amount of funding needed and the effect that will have on the global economy. He added that the proposal may help efforts to reach a binding agreement on climate change later this year.

Strauss-Kahn proposed that countries adopt a quota system similar to the one the Fund uses to raise its own money, which could bring in money faster than proposals to increase carbon taxes or other fundraising methods. He only provided a broad outline of the plan, as the organization will release a paper within 10 days with full details. It is unclear how the proposal will be received.

The IMF raises funds from its 185 members mainly through a quota system that is based broadly on each country’s economic size. The United States is currently the largest shareholder.

“We all know that (carbon taxes and other fundraising methods) will take time and we don’t have this time. So we need something which looks like an interim solution, which will bridge the gap between now and the time when those carbon taxes will be big enough to solve the problem,” Strauss-Kahn said. “And that is exactly what the IMF proposal is dealing with.”

He said a climate change accord reached last December estimated $100 billion a year will be needed by 2020 to fund programs, including those to help poor nations deal with droughts, flooding and food shortages expected to be caused by climate change.

A Kenyan anti-poverty campaigner said the IMF should not get involved in climate change because in Africa it has promoted policies that saw an increase in the exploitation of fossil fuels, which have contributed to the greenhouse gas emissions blamed for climate change.

“IMF is responsible for the consumption patterns that has generated the current climate crisis that we face. And they have neither the expertise nor the moral authority to discuss the issue of climate change,” said Vitalice Meja, the coordinator of Reality of Aid Africa, an anti-poverty advocacy group.

Nations failed to reach a binding deal in Copenhagen in December, but agreed on a voluntary plan to control greenhouse gas emissions which are blamed for the gradual heating of the Earth that scientists predict will worsen weather-related disasters. The accord, however, included collective commitments by rich countries to provide billions of dollars to help poor countries adapt to climate change, a major demand the poor nations had made.

The more than 190 nations will reconvene in Cancun, Mexico, later this year for another attempt to reach a binding agreement to replace the Kyoto Protocol, which sets emissions targets for industrial countries and expires in 2012.

IMF Proposes Global Fund to Ease Climate Adaptation

Though the science behind climate change projections has been taking a beating recently, one important institution is preparing for the worst. The International Monetary Fund is proposing a global climate adaptation fund as insurance for countries facing the disastrous consequences of a warming climate. While the IMF has not historically crafted environmental policies, it has long been worrying about and planning for the macroeconomic and fiscal consequences of climate change. Temperature fluctuations could severely inhibit productivity, natural disasters could demand huge cash infusions, and permanent economic adaptation could require large up-front investment — all developments that would involve the IMF.

In a paper that will be released later this week, the IMF models its scheme upon its own system of assigning member nations a quota based on their economic profiles. This quota determines countries’ contributions, voting power, and access to financing. (Quota assignations were recently revised in order to better represent low-income countries and emerging markets.)

The World Bank predicts that adapting to climate change will cost $75 to $100 billion annually between 2010 and 2050. Much of this sum will be needed to help developing nations mitigate the droughts, floods, and famines that are expected to accompany higher global temperatures. In Copenhagen this December, a group of large nations floated a $100 billion annual fund by 2020 that would help poor countries manage these consequences. The IMF’s proposal will provide much needed details to achieve this goal.

‘No reason for US to wait for India, China on climate change’

The US should not wait for India and China to act on climate change and should go ahead with its environmental protection activities in terms of legislation besides research and development, a top official of the Obama Administration has said. Lisa Jackson, Administrator of the US Environmental Protection Agency (EPA), also decried lawmakers of the opposition Republican Party who have been opposing the Climate Change legislation and asking the Obama Administration not to take any further step on the issue unless India and China take concrete steps in this direction. “I really think that we’re missing an opportunity if we don’t realise that the technologies that are going to be used to move us into cleaner energy, lower carbon, less water use, all those technologies are going to be important, not just here but to the world,” Jackson told reporters at the National Press Club in Washington.

“So I would say there’s no reason to wait for China and India to act if we truly believe that there is a reason, environmental and economic, to act now. In fact, there’s every reason not to wait,” Jackson argued.

“There’s every reason to move forward as expeditiously as we can so we don’t see what seems to be happening continue, which is that we innovate, we invent, and then it goes overseas to be manufactured and used because there’s no market for it here,” Jackson said in response to a question.

Solar Industry Learns Lessons in Spanish Sun

Two years ago, this gritty mining city hosted a brief 21st-century gold rush. Long famous for coal, Puertollano discovered another energy source it had overlooked: the relentless, scorching sun. Armed with generous incentives from the Spanish government to jump-start a national solar energy industry, the city set out to replace its failing coal economy by attracting solar companies, with a campaign slogan: “The Sun Moves Us.”

Soon, Puertollano, home to the Museum of the Mining Industry, had two enormous solar power plants, factories making solar panels and silicon wafers, and clean energy research institutes. Half the solar power installed globally in 2008 was installed in Spain.

Farmers sold land for solar plants. Boutiques opened. And people from all over the world, seeing business opportunities, moved to the city, which had suffered from 20 percent unemployment and a population exodus.

But as low-quality, poorly designed solar plants sprang up on Spain’s plateaus, Spanish officials came to realize that they would have to subsidize many of them indefinitely, and that the industry they had created might never produce efficient green energy on its own.

In September the government abruptly changed course, cutting payments and capping solar construction. Puertollano’s brief boom turned bust. Factories and stores shut, thousands of workers lost jobs, foreign companies and banks abandoned contracts that had already been negotiated.

When Goods Get Traded, Who Pays for the CO2?

Popularly, China is a villain in climate change. Many people who attended last year’s chaotic U.N. climate-change talks in Copenhagen “” especially those who belonged to the U.S. delegation “” singled out China as the main reason the summit nearly collapsed. Chinese diplomats fought hard against any form of emissions regulation, even though their country is now the world’s No. 1 national carbon emitter, and will emit far more carbon in the future than any other. In Washington, opponents of carbon cap-and-trade also point to China, which is unlikely to take on a carbon cap of its own, and wonder why the U.S. should have to restrain its emissions. But a new study published in the March 8 edition of Proceedings of the National Academy of Sciences (PNAS) shows that the carbon equation isn’t as straightforward as we might think. Scientists at the Carnegie Institution of Washington at Stanford University synthesized carbon emissions and trade patterns and found that more than one-third of CO2 emissions related to the consumption of goods and services in developed countries are actually emitted outside their national borders. Rich nations are essentially outsourcing some of their carbon emissions to developing nations through global trade “” by importing goods and services from abroad “” thereby shrinking their carbon footprints while inflating those of major exporting nations like China. “It’s surprising just how much this effect is driven by the U.S. and China,” says Steven Davis, an ecologist at the Carnegie Institution and the lead author of the PNAS paper. “It is significant.”

7 Responses to Energy and Global Warming News for March 9: Governments spend $500 billion a year to subsidize fossil fuels; U.S. cleantech outpaced by China

  1. Milan says:

    The 2011 US Budget may cut fossil fuel subsidies by over $2 billion over ten years. Hopefully, those provisions will get through Congress.

  2. Leif says:

    It is interesting to note that $500 billion is about 1/3 of the world budget for defense. If all the true subsidies were known that number might even be one half of all defense spending. Between the two? About two trillion per year! EXXON profits alone last reported year? ~$45 billion! What a deal.

    Lester Brown estimates in “Plan B 4.0” that the yearly cost of a whole bunch of sustainable energy costs as well as sustainable humanitarian efforts from condoms to reforestation and education of third world folks would be about $200 billion a year. Why, oh why???

  3. James Newberry says:

    The identified subsidies mentioned above most likely concern only direct and indirect amounts monetized through budgetary process. External subsidies, or socialized costs not accounted for, like health care impacts, environmental destruction (like deforestation) or current account deficits, are typically much larger in total.

    Years ago, research reported in Scientific American indicated many tens of billions per year for fossil and fissile “fuel” subsidies in the US. External societal costs were hundreds of percent larger.

    Perhaps those two icebergs of 1000 square miles each, floating in the Southern Ocean, are just the beginning of some larger “external costs.”

  4. Chris Dudley says:

    I’ve posted before saying that China is just demonstrating how to respond to exponential growth in the renewable energy market. We may be a bit jaded and don’t care for supplying immature markets right now. However, it is also worth noting that devaluing our currency with respect to China’s would generally encourage manufacturing of all sorts. How to do that may be tricky, but it pretty much has to happen if we want to manufacture.

  5. prokaryote says:

    China and India endorse Copenhagen climate deal

    China and India joined almost all other major greenhouse gas emitters Tuesday in signing up to the climate accord struck in Copenhagen, boosting a deal strongly favored by the United States.

    Chinese negotiator Su Wei wrote a one-sentence letter to the U.N. Climate Change Secretariat in Bonn saying that it could “proceed to include China in the list.”

    China, the United States, the European Union, Russia and India are the main emitters of the greenhouse gases that are blamed for global warming — mostly carbon dioxide from burning fossil fuels. Only Russia has yet to associate with the deal.

  6. Leland Palmer says:

    Our whole society has been warped by decades of fossil fuel industry influence into a high energy consumption society.

    Take the interstate highway program, for example. By using tax money to support the building of roads, we subsidize automobile and truck transportation, at the expense of rail. Increased automobile and truck use leads to increased fossil fuel use.

    Consider zoning laws. Zoning laws dictate that people cannot live within walking distance of their work, in many cases, increasing commuter distances, and this leads to more fossil fuel usage.

    Yes, the oil corporations want to keep subsidies narrowly defined, no doubt about it. Our society is locked into a high energy consumption mode- which directly benefits those energy monopolies that supply that energy.

    If we subsidize highway construction, and perhaps we should, we should also subsidize railway construction, to level the playing field.

    Of course direct fossil fuel subsidies should be cut out completely – our society does not want to encourage the use of fossil fuels, except perhaps natural gas. Of course solar, wind, hydro, and biomass should be subsidized- we have a higher social purpose that easily justifies such subsidies.

    But we need to look very hard at social policy in general, and indirect regulatory effects like zoning laws, and hidden subsides such as the interstate transportation system, built and maintained by taxpayer money.