In the last blog, I wrote about the reasons why the oil companies, which represent huge companies in the private sector, do not fully support the alternative energy sources. In this blog, I will focus on the government sector, which is one of the most influential factors to make alternative energy sources become reliable.
According to the International Energy Agency (IEA), in 2012, the world subsidized and invested about $550 billion in fossil energy compared to $120 billion in renewable energy. (Richard, 2014) The graph below shows that about half of the money was on oil, which is existed energy. This means that most funding could go solely to the oil companies that do not usually support the renewable energy as I talked in the my last blog.
One of the reasons could be that the return on the government investment from the fossil energy is guaranteed compared to the renewable energy. This is because the oil companies have professional people and equipment to work on any assigned projects immediately. On the other hand, the renewable energy is in progress, which requires tons of research and time in order to decrease the cost of production. As a result, most governments in the developing countries, which their money is limited, tend to invest and subsidize in fossil energy.
The graph below shows that the United States spent money to subsidize fossil fuel around 3.2% of its GDP on fossil energy, which is two times higher compared to Canada at 1.5% of its GDP. Moreover, the United States spent money over ten times higher compared to Italy and France.
One of the reasons was the oil companies lobbied the United States government to keep the cost of oil down by maintaining the tax targeted tax breaks for extracting and transporting fossil products. Also, the government gives the tax credits to oil and natural gas manufacturers that build their factories within the United States (Weiss, 2013). Thus, this is not necessary because the oil and natural gas manufacturers cannot move oversea for any reasons. Overall, “The Congressional Joint Committee on Taxation estimated that this special tax break accounts for $14 billion—or nearly 60 percent—of the $24 billion in tax breaks that the big five companies will receive over the coming decade”, Environment & Energy Daily (as cited in Weiss, 2013).
In fact, the oil companies spend a lot less money in order to lobby the US government, about $33 million through the third quarter of 2013 to save over $2 billion in tax payments (Weiss, 2013). This illustrates that if the lobbyists do not happen and the government does not pass laws that support and help oil companies, the country would have a lot of money in taxation to spend on renewable energy and other social issues. Also, this helps oil companies to gain their cost of production advantage in energy sources, which make other renewable energy companies to compete in term of the energy prices.
Sources:
http://www.bbc.com/news/business-27142377
https://www.americanprogress.org/issues/green/news/2013/11/05/78807/big-oil-big-profits-big-tax-breaks/
Anirudh Mylavarapu says
Hey Opal,
I think you’re blog gives a really good insight into the whole oil resources and fossil fuels dilemma. Clearly renewable energy is the way to go towards but it’s quite expensive compared to the fossils and like you mentioned, governments buy more fossils. I think it would be very interesting to see how this unfolds because it has a huge impact on climatic change.
Anirudh