If you find yourself in a hole, stop digging.
- Often attributed to Will Rogers, U.S. humorist
We hope it is clear to everyone that inappropriate policy response can make this problem, or any other problem, worse—the discussion above assumes efficient policy responses. But, this raises the question of the current policy response—how much are we doing now to stop global warming?
One measure might be to look at subsidies, because their cost is probably much easier to estimate than the impact of regulations. The International Energy Agency (IEA), an intergovernmental organization established through the Organisation for Economic Co-operation and Development (OECD), estimated subsidies for their World Energy Outlook 2012. They found world-wide subsidies for renewable energy in 2011 of $88 billion, or just over 0.1% of the world economy. (International Energy Agency World Energy Outlook 2012 [1], chapter 7,). However, IEA also found that direct fossil-fuel subsidies worldwide totaled $523 billion, almost six times more, and just over 0.7% of the world economy (World Energy Outlook, Executive Summary, 2012). [2]
The International Monetary Fund (IMF) provided a more comprehensive estimate of subsidies for fossil-fuel energy (Energy Subsidy Reform: Lessons and Implications, 2013 [3]). The IMF considered pre-tax and post-tax subsidies. Pre-tax subsidies are primarily payments or other ways that allow consumers to spend less than the market rate for fossil fuels, and are mostly found in the developing world. Post-tax subsidies include lower tax rates on sales of fossil fuels than on sales of other goods and services, and failure of tax rates to recover the externality damages from fossil-fuel use to health, environment, etc.; this includes climate change, which was calculated at the social cost of $25 per ton of CO2, perhaps on the low end but within the range typically seen in such studies.
The IMF estimated global pre-tax subsidies in 2011 as $480 billion, similar to the IEA estimate; this is about 0.7% of global Gross Domestic Product (GDP, which is roughly, the size of the whole global economy), or 2% of total government revenues. Total subsidies, including lower tax rates and externalities, were much larger, globally $1.9 trillion in 2011, about 2 ½ % of world GDP, or 8% of total government revenue. Post-tax subsidies were more concentrated in the developed world, with the US the single largest subsidizer ($502 billion, to China’s $279 billion).
Worldwide, these reports indicate that direct subsidies for renewables and fossil fuels per kilowatt-hour are very roughly equal, with subsidies relatively larger for renewables in the developed economies and smaller in the developing countries. Including the full subsidies with externalities, the data suggest fossil fuels are much more subsidized than renewables per kilowatt-hour in developing and developed economies, including the US.
Public support for research is also relevant, because it helps produce the technologies that enter the market. For example, the fracking boom was commercialized by private companies, but development received notable support from funding of the US Department of Energy and other sources (see, for example, Begos, K., Decades of federal dollars helped fuel gas boom [4], Sept. 23, 2012, Associated Press).
Estimates of research funding are available from the IEA. As of 2010, IEA member nations (most of the big players in worldwide research) had increased funding for Energy RD&D (Research, Development and Demonstration projects) to about 4% of their total research portfolio, still a very small fraction (research on topics such as health and medicine tends to be much bigger) (IEA, Global Gaps in Clean Energy RD&D 2010 [5], International Energy Agency). Over decades, the energy research portfolio has been dominated by fission, fusion and fossil fuels, with fossil-fuel research exceeding research on all renewables combined. By 2010, increasing research on renewables had almost caught up with fossil fuels if stimulus funds during the recent widespread recession were omitted, although fossil fuels benefitted more from stimulus funds than did renewables. Thus, over the time during which much of the research was done that is now contributing to economic activity, fossil fuels have been favored over renewables in publicly funded research (Figure 1, p. 6 in Global Gaps, IEA, 2010).
You can be confident that many people, on many sides, would argue about the discussion here. Where the IMF has identified subsidies because fossil fuels are taxed at a lower rate than, say, computers, the fossil-fuel industry is likely to view any tax above zero as a subsidy for non-fossil-fuel energy sources. In the US, money is collected from fuel sales for cars and trucks, and used to build and maintain roads. Is this a tax, serving to reduce fossil fuel use? Or, a user fee, with no net effect on fossil-fuel use? Or, a subsidy, enhancing fossil-fuel use? (By having the government build new roads, “eminent domain” can be used to force private landowners to sell property for roadways, allowing more roads at lower cost and thus more car and truck transport than would be possible under private funding with “normal” landowner rights. Similarly, when the interstate highway system was started under the administration of President Eisenhower, it was authorized by the National Interstate and Defense Highways Act of 1956, with an explicit tie to national defense; this likely made funding easier, and the roads served to greatly increase truck and automobile traffic, and “suburban sprawl”, at the expense of trains.
PRESENTER: This road is headed north into Canada just east of the Great Glacier Waterton Lakes International Peace Park that straddles the Canada, Alberta, border. The road has been built, and then you'll see that the road has been maintained. And in many countries, roads are built and maintained with small taxes on gasoline petrol, motor fuel.
When economists, policymakers talk about using taxes to reduce fossil fuel use, that would assume that the money raised is not used for purposes, such as building and maintaining roads, that actually serve to promote more use of fossil fuels. It is quite possible that the sort of tax that is used to fix the roads is actually a sort of subsidy for fossil fuel use because it encourages more use. And if you want to use a tax to reduce fossil fuel use, the money has to go to something other than promoting more fossil fuels.
Policy decisions made in the past are relevant as well, because business-as-usual assumes that we continue doing what we have done in the recent past, which in turn is based on policies that were adopted further in the past. Consider the case of rural electrification and wind.
As told below (click on link below) before his election as US president, Abraham Lincoln gave a speech highlighting the value of learning and inventing, and in particular pointing out the potential for wind power in places such as his home state of Illinois. Rapid development followed, with the wind power initially used primarily for pumping water, but increasingly with generators and batteries to provide electricity for remote farms.
Many people are surprised that Lincoln was a promoter of wind energy, but he believed deeply in education and the good that science and engineering could do for people. He was an inventor, the only US president with a patent to his name, as described in this clip from the Earth: The Operators’ Manual team. And, in signing the bill founding the US National Academy of Sciences, he gave the US and the world a highly respected source of unbiased information on science. Take a look at this slightly longer than 5-minute clip to learn more.
Earth: The Operators' Manual
Credit: Earth: The Operators' Manual [6]. "Abraham Lincoln and the Founding of the National Academy of Sciences [7]." YouTube. October 6, 2012.
However, beginning in 1935, the US Government supported a program of rural electrification, providing loans and in other ways promoting centrally sourced electricity for remote farms, often with coal-fired generation systems. The advent of such centralized, subsidized power made off-the-grid systems less competitive. Many other forces were at work as well, but the government actions on topics including rural electrification and interstate highways have contributed to increased fossil-fuel use.
PRESENTER: This picture from the US National Archives shows the TVA, the Tennessee Valley Authority, during the 1930s, engaged in rural electrification, bringing power to the people. They built dams to make hydroelectric power, but they also used coal, and the government helped bring the wires that brought the electricity to people.
This government decision had a lot of winners that included the people they got the power, it included people who were building coal fired power plants, and people building dams. It also had losers, including people who made windmills, because with the government supporting this centralized power coming in through the wire, getting your own distributed power from your own windmill was less favorable.And so when governments make decisions, they really do have winners and losers. And the situation we have now, with more coal than wind, in part comes from decisions that were made in the past by the government.
You may hear people say that it is not the government's business to regulate energy or subsidize renewable energy research and infrastructure. What examples could you provide to show that the government has been supporting energy projects for a long time, and many of these projects have favored fossil fuels?
Click for answer.
So, recognize that there are more reasons for disagreement on the nature of a fossil-fuel subsidies than on the radiative effects of the CO2 from burning the fossil fuel. And, Dr. Alley would be happier reporting the current state of policies if the relevant literature were broader and deeper, with more impartial assessments.
Still, the sources cited here are reliable, and together present a clear picture. Suppose we ask where we are on a spectrum of possible policies, extending from “work really hard now to reduce future global warming” through “neutral” to “work really hard now to accelerate future global warming.” Based on the sources cited here, the best estimate of the net effect of past and ongoing government policies and government-funded research is still on the “accelerate global warming” side of neutral for the world and for the US. Policies probably are moving toward neutral, with renewables gaining in research and subsidies, but with more to do to reach a balanced approach, and even more to reach an economically efficient position. And, considering the inertia of the current system, moving well past neutral may be required to really overcome the history of fossil-fuel promotion.
For a little more Enrichment on policies, have a look at this short clip. This is a very U.S.-centered piece, and while we in this course have tried to avoid telling you what to do, some of the people interviewed in this clip were happy to offer their opinions.
Earth: The Operators' Manual
Credit: Earth: The Operators' Manual [6]. "Avoid the Energy Abyss" (Powering the Planet) [8]." YouTube. April 22, 2012.
Links
[1] http://www.worldenergyoutlook.org/media/weowebsite/2012/WEO2012_Renewables.pdf
[2] https://www.iea.org/reports/world-energy-outlook-2012
[3] http://www.imf.org/external/np/pp/eng/2013/012813a.pdf
[4] http://bigstory.ap.org/article/decades-federal-dollars-helped-fuel-gas-boom
[5] https://www.iea.org/reports/global-gaps-in-clean-energy-rdd
[6] https://www.youtube.com/@Etheoperatorsmanual
[7] https://www.youtube.com/watch?v=a92YHaTVlMs
[8] https://www.youtube.com/watch?v=IsAotaTWLK8