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Time to level the playing field and remove energy subsidies

By James Allston Monday 13 April 2015

This week World Bank chief Jim Yong Kim openly slammed fossil fuel subsidies stating: “Fossil fuel subsidies send out a terrible signal: burn more carbon.” As backdrop to this, last week Michael Greenstone, ex-Whitehouse adviser and leading professor of economics at the University of Chicago published an article in the New York Times warning that extracting and burning all the world's fossil fuels would mean a 9 degree rise in global temperature. When the world’s leading scientists have warned that we must keep global temperature rises to a maximum 2 degrees, this is a frightening statistic. 



The simple reality is that the vast majority of the world’s oil, gas and coal reserves should not be burnt and the energy industry should instead be getting ready for a cleaner, safer future. Unfortunately most energy companies don’t seem ready to see the bigger picture.

What’s needed is a signal, that it’s time to get off the fossil fuel hook and encourage new, cleaner, smarter technologies to take their place. One of the most effective ways of doing this would be level the playing field by removing the subsidies extra financial support given to the fossil fuel industry. The International Energy Agency recently reported that the value of this support to fossil fuel companies total globally is around £375 billion. That’s four times the total value of subsidies for renewables. The UK is no angel either. The UK is the fifth biggest fossil fuel subsidiser in the G20 spending a total of £2.6 billion per year propping up fossil fuels like oil and gas*. 

So if this isn’t the right approach, what is?

Well, OVO Energy would prefer to see as little extra support going to both fossil fuel and renewable industries as possible. Putting a ‘price on carbon’ (making sure polluters pay for what they emit) would be much fairer and more efficient. With a real level playing field like this, low carbon technologies could compete without the need for big subsidies, and the public money saved could go to anything from the NHS to energy efficiency. And now is the perfect time to do it, as oil prices are low so there’s less difference between the cost of low carbon and fossil fuels than there’s been in recent memory.

Malaysia and Indonesia have been reducing their subsidies and India and Egypt a looking to follow suit. It’s time for the UK to get with the programme!


*It’s worth noting that the majority of the £2.6 billion goes towards discounting VAT on domestic energy i.e. gas and electricity. We respect that removing this subsidiary would put upward pressure on energy bills. But we believe that £2.6 billion per year could be better spent thereby providing greater benefit to customers.