Subsidies blur the real price of energy

Transparency and harmonisation. These should be the key words for subsidies provided to the energy sector in the EU. Otherwise we will never know what the real price of energy is, says Jacqueline McGlade, executive director of the European Environment Agency (EEA) and the initiator of the report Energy subsidies in the European Union: A brief overview.

 

The report, which is the first of its kind for Europe, reveals that the EU-15 member states provide almost 30 billion euro a year to the energy sector in different forms of support.

 

Figures from 2001 show that approx. 22 billion euro go to support fossil fuel production and consumption, while 5 billion euro go to support renewable energies. The Danish Wind Industry Association met Jacqueline McGlade for a brief interview about the report.

 

What do you consider the significant findings of the report?

"What was crucial is that we have seen the length of time over which subsidies in the traditional fuels had carried on. What we were keen to point out is that in 2001 investments in renewable energy apparently escalated and our message is that you need to maintain this level for a long time to have the same kind of impact that you see in coal or gas."

 

Jacqueline McGlade also emphasises that the so-called off-budget subsidies blur the real price of energy. The off-budget subsidies cover tax exemptions, credits, deferrals, rebates and other forms of preferential tax treatment. The off-budget subsidies total 21 billion euro.

 

What concerns have been voiced after the publication of the report?

"The first important message is that energy is not as cheap as you think it is because of these subsidies. The second is that if you are not careful you subsidise the wrong parts of the programme."

 

The wrong parts of the programme refer to the fact that subsidies are sometimes given in order to secure jobs. Jacqueline McGlade mentions Germany's support of its coal industry to keep coal miners employed.

 

But securing people's jobs with subsidies must be hard to disagree with?

"It is absolutely fine. What is unacceptable is the lack of transparency. Until we have a harmonisation of which subsidies are reported you can very quickly get some distortion in the market, which would then lead to difficulties for some renewable energies to get their foot in. Because they are not really competing against the price per kilowatthour, they are actually competing against a whole range of issues like employment, social welfare etc. Until we are clear on what the subsidies are and how they can be harmonised, we will not understand what the price of energy really is."

 

The EU wants to reach a target of 12% for the contribution of renewable energy to total domestic energy consumption in the EU by 2010. EEA is sceptical that this target will be met but you are still recommending further targets for 2020. Why is that?

"I think it is very important to set targets further out, against which investment then can be set. If you look at the subsidies for fossil fuels they had somewhere between 20 and 30 years perspective so we should anticipate doing the same thing for renewable energy. I think if you do not have that, the industry will not effectively take off."

 

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