Balancing energy subsidies

In 2012, the International Energy Agency (IEA) recorded a rise in global support for fossil fuel, from £306bln in 2011 to £326bln. Renewable energy subsidies increased by 11% to £60.5bln in the same period. In 2013, an Environmental Audit Committee report highlighted that most of the £12bln in energy subsidies in the UK went to fossil fuels. Probably one of the most controversial renewable energy subsidies is the photovoltaic (PV) feed-in tariff that has been tested with varying degrees of success in most EU countries over the past decade. The cost of PV has fallen dramatically over the past few years thanks to these subsidies and in Germany, Denmark Spain and Italy, PV has already reached grid parity. Since 2004, less than 10% of the rise in UK power bills can be attributed to low-carbon technologies - 16% is for improvements to the grid and infrastructure, and 64% to the rising cost of natural gas imports. High prices put energy out of reach of those most in need of it, however they also encourage energy-efficient behaviour, drastically reducing energy consumption and associated emissions. Press reports have speculated that nearly 8,000 people died from energy poverty in the UK in 2012. In 2008 a report by Committee on the Medical Effects of Air Pollutants (COMEAP) highlighted air pollution as responsible for the premature deaths of 29,000 people in the UK, and globally the WHO put the figure at 3.7 million. The International Monetary Fund (IMF) has become the first mainstream international organisation to include these environmental externalities in its energy subsidy calculations and has subsequently adjusted the IEA fossil fuel subsidy to £1.2 trillion. The most important aspect for any financial incentive scheme is that it remains stable in order to send clear signals to investors and citizens. Once the hidden costs are considered, it is clear where these sustainable policies lie.