Why is Dirty Energy Still So Cheap?

The clean tech sector has experienced remarkable success in the past few years, yet there still remains one huge roadblock from mass implementation – cheap fossil fuels. Some may think this is simply a matter of free-market capitalism at work. The real truth is that petroleum and coal industries continue to receive massive subsidies from governments around the world, while renewable energy firms receive only a small fraction of that amount.

A new report from Bloomberg New Energy Finance indicates that governments gave $46 billion of support to renewable energy last year through tax credits, feed-in tariffs, and alternative energy credits. In contrast, the International Energy Agency stated that $557 billion was spent to subsidize fossil fuels in 2008.

Rather than impose an appropriate tax structure so that governments can benefit from some of the most profitable companies in existence, lawmakers are considering further cuts in subsidies to the clean tech sector. This is particularly true in Europe, which is ironic since this is where some of the most progressive clean energy policies have been implemented in recent years.

The New York Times reported that Spain, Germany, France, Italy and the Czech Republic have all announced subsidy cuts to the wind and solar industries. There are hints that the U.K. may also follow suit in an attempt to balance their state budget deficit of 160 billion pounds.

“There is a challenge. There is an economic crisis and a climate crisis. Governments want to cut costs, but they also need to combat climate change. There is a careful balance to be struck,” Stephen Lilley, managing director of green investment bank Climate Change Capital, told ClimateWire.

What many governments do not realize, however, is that they are facilitating continued ecological degradation and deeper budget deficits by not addressing the total amount of subsidies given to the fossil fuel industries. They also send a loud signal to investment communities about the value of clean tech firms.

“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 New Energy Finance. When government support wanes for clean energy, so does VC funding.

Now is an opportune time for policymakers to get it right. In light of this summer’s worst oil spill in history, coupled with the desperate need for governments to bring in revenue, it is time for a serious overhaul of subsidies for fossil fuel industries.

Shannon Arvizu, Ph.D., is a clean-tech marketing and policy consultant in the transportation sector. To find out how to maximize market demand and increase the bottom-line for clean technology, visit www.MissElectric.com.

Shannon Arvizu, Ph.D., is a clean tech educator and cutting-edge consultant for the auto industry. You can follow her test drives in the cars of the future at www.misselectric.com.