It is taken as gospel that renewable energy systems in general are “not economical” or they “cost more” or your have to “pay more” for them. Sure, a few people have heard that wind turbines are competitive with conventional energy sources. But by-and-large the prevailing view, supported by endless off-hand remarks to this effect – including well-researched articles on the subject – have ingrained in us the idea that solar power, and renewables in general, simply can’t compete with oil. End of story.

Articles have suggested that perhaps the only answer, one that goes against the politicians’ election promises, is that we will have to raise taxes in order to pay for the transition away from oil, and towards renewable energy systems. What is shocking is the complete lack of any consideration for the most obvious source of funding for this endeavor. Why don’t the politicians do the most logical and powerful thing available? In Canada we the taxpayers – the people – give oil companies, $6 billion annually (including a bit for nuclear). Worldwide subsidies for oil companies exceed $300 billion conservatively. If we include costs related to clean-up, pollution-related deaths, roads built for cars and trucks, military spending required to control the sources of oil in the middle east and around the world, then oil would be far more expensive than renewable energy. On top of that, these oil companies are some of the most profitable corporations in the world, commanding the largest pools of capital, and with horrific human rights abuses, environmental devastation, and scandalous levels of corruption. The scale of the subsidies over the past one hundred years is essentially beyond comprehension, and made so by deception at all levels. I think it is safe to say that trillions of taxpayer money has been used to subsidize the wealthy elites that control oil companies over the past century.

Now it is time to learn from our mistakes. Simply speaking, we need to devise fair and equitable means of transferring the subsidies to clean green renewable energy, rather than oil. This solution actually ends up being doubly effective from an economic standpoint. First, removing the $300+ billion annually from the bottom line of oil companies suddenly forces them to reflect a little better the real cost of this non-renewable resource. Second, applying $300 billion annually to the renewable energy sector would create the necessary economies of scale to further improve the economic advantages of renewable energy. In total, the economic benefits of this shift run far deeper.

The annual balance of subsides would net a $600+ billion and growing advantage in favor of renewable energy. Economies of scale would significantly reduce the cost of renewable energy solutions from solar panels, inverters, storage technology, integration components, wind turbines, wave turbines, water turbines, biogas, biomass, solar water heating, passive solar and geothermal, and others – and new technologies we haven’t even imagined. Conservation measures would also benefit in combination with renewable systems. The scale of renewable deployments – and the speed at which the economic engine would drive the change – would be hard to imagine, as the return on investment (ROI) would be so clear to all sectors of society. On top of all this, reduced health costs, reduced effects from climate change, and fewer potential military conflicts, would combine to provide even further support to the economic engine. Taxes added to offset the clean-up and health costs of continued use of oil and nuclear would further increase the economic cost advantages of renewables. In total, within just a few years, this vastly more sensible use of taxpayer subsidy money for energy would essentially provide in excess of $1 trillion annually towards the subsidy of renewable energy. Job losses related to oil would move to the renewable energy sector in proportion (most research indicates that more jobs would be created in a world supplied by renewable energy).

It is well within our rights as the providers of the subsidies to decide that our money is best spent on instantly transferring next year’s subsidies entirely to the renewable energy sector. Like an addict, we should realistically consider weaning the oil industry off their current subsidies over a five-year period. Two factors make this aggressive timeline sensible. First, the global climate change impacts, according to some models, may already be approaching the point at which dramatic and perhaps irreversible changes have already occurred. Second, remaining oil reserves may peak during this period causing devastating economic impacts – especially if alternatives are not cost effective (not to mention potentially reducing the likelihood of another military invasion of, say, Iran). Most oil companies are already positioned to take advantage of the renewable energy transition with subsidiaries in the solar, wind, and other renewable energy sectors. With the subsidy shift, it won’t take these economic giants long to take advantage. Opportunities will also exists for the creative and entrepreneurial to create the next generation of energy companies. By applying subsides equitably to all sectors of society, local communities, small business, government and large companies will all benefit.

It is early in 2005 as these words are being written. If we commit ourselves to this essential transition of subsidies, we can start the five-year implementation plan in 2006. By 2011, society will be well on the road to a sustainable future – at least from an energy perspective – with oil subsidies transferred completely to renewable energy, in combination with improved regulatory controls on polluters, and increased taxes on polluters (especially the oil industry). Oil rich countries will still have decades to parlay their limited one time inheritance towards a transition in economic focus – one that is sustainable far into the future. Less developed nations must have increased levels of subsidies in the form of aid so that they can skip (or reduce) the development of infrastructure related to the now antiquated oil based centralized models, and move directly to the increasingly economically sensible distributed renewable energy model.

Let us take a small example to see what the potential larger scale impacts might be. Keep in mind that, if worldwide subsidies were transformed, the synergistic increases in economies of scale would be even greater. We will use Canada as a small-scale example of what nations like the United States, European Union, and Asia might do, and what impacts are possible.

Let us review a few facts and cost estimates that we can use to help visualize the transformation. The following are for Canada (in US dollars).

Table 1.

Let us assume that the oil subsidies are decreased over four years by 25% each year, and applied to the renewable energy sector. Then in the fifth year let us assume that the subsidy is increased by $1.5 billion per year. Thus, after five years the annual renewable energy subsidy will be $7.5 billion while oils subsidies will be zero thereafter. Canada has about 30 million people. If we assume that the average family has four people, and to keep things simple that each family lives in their own home of some kind, then there are 7.5 million homes (homes being either individual houses or apartments/condominiums). Then let us also say that the number of commercial buildings is about 25% of the number of residential homes – or about 1.8 million buildings.

In the first year of the transformation, 2006 hypothetically, subsidies for oil are reduced by 25% – all of which is applied to renewable energy, providing $1.5 billion. Again, to keep things simple let us divide the subsidies directly into investment in the three areas defined in our table. First, if we apply a third ($500 million) to wind turbines we would get 250 wind turbines producing 250 megawatts of clean renewable wind power. Second, if we a apply another third to retrofitting homes, we’d have 8,333 homes each saving about $2,000 per year while generating approximately 83 megawatts of energy (assuming about 10 kilowatts per home). Third, if we apply another third to retrofitting commercial/industrial or apartment building 500 would be transformed, saving in excess of $15 million per year, while generating/saving approximately 50 megawatts per year (assuming about 100 kilowatts per building). Total renewable energy generating capacity potential for the next twenty to thirty years or more would be 383 megawatts.

Again keeping things simple, we increase the transition amount by 25% each year so that by the fourth year 100% of the subsidies are going towards renewable energy.

Table 2.

Of course many variables will affect these models and therefore the numbers in both directions. Increased demand will lower the cost and increase the efficiency of the renewable energy technologies, producing more energy per dollar spent, saving even greater amounts annually on energy bills. Increased demand in the short term on the other hand will increase the price as markets adjust. Availability will limit the level of deployment as will logistical and production limitations. Increased taxes on polluting oil products would improve the situation in favor of renewables. Some oil related job losses would hurt the transformation’s economic benefits in the short term. Increases in jobs can be expected from renewable energy economies over the longer term. With these kinds of subsidies applied at these levels the economics suddenly favor renewable to such an extent that demand will prove a difficult and perhaps volatile issue as everyone wants to reap the financial benefits sooner rather than later. Resistance due to fear, lack of knowledge, backlash, or oil company propaganda campaigns may slow the process. If households were given $60,000 and knew they would save $2,000 per year, clearly the demand for the subsidies from this sector would be near universal. In reality, this model is too simplistic. A program that would offer a broader level of support to provide subsidy to homeowners in the range of 50% of the cost of the system, say $30,000, with low/no interest loans for the remaining $30,000 cost amortized over a ten-year period. Zero interest loans with longer terms would also be sensible. These types of programs would necessitate a process of allocation over say a five to ten year period. For commercial, industrial, office, apartment, and condominiums, the demand would be similarly managed, with perhaps even broader and alternative financing schemes.

The idea for a transition strategy has been necessarily simplified. However the principles, even when applied more holistically to a much wider variety of subsidy programs, would likely have similar effects (if not even more significant benefits) and be able to support greater generation of renewable energy as modeled. In fact, generation would likely be much higher as technology improves levels of efficiency and lowers cost.

Other critical areas of transformation would be transportation and food systems. Here again subsidies that support unsustainable practices need to be eliminated through a transition phase. Levels of subsidy for transportation (roads etc.) and food production (farm subsidies) that focus on oil based systems would need to be the focus. Without highways and road systems, oil powered cars would not be economical when compared with trains, subways, walking and bikes. Removal of subsidies for farms that don’t use organic or similar sustainable, non-oil based systems would also encourage the transformation of these systems. Farms that produce using organic techniques would suddenly be even more profitable with the subsidies currently enjoyed by other farms.

Clearly, two techniques for transformation to renewables will make things happen. First, as discussed here, shift subsidies from oil to renewable energy sources. Second, the application of higher taxes to oil based products to for cleanup costs and to support the transition phase.

Bottom Line

How does this relate to reality. Currently Canada generates about 600 TWh (terra watt hours) of electricity to meet annual demand. The scenario we have outlined, one that is far to simplistic, and more than likely incredibly conservative, shows that within five years we could generate about 1% of our electricity demand with renewables. Existing “green power” initiatives already underway or announced could provide up to 7% of electricity generation by 2010 (according to Pollution Probe, “A Green Power Vision and Strategy for Canada”). The real impact of transferring all of the oil subsidies is likely much greater. Again, with this type of subsidy strategy in place Pollution Probe, in a review of the potential by experts in the field, estimated that about 340 TWh could be generated using green power by 2025, providing about 50% of the demand.

As I sit in my solar powered home writing these words I know that we can do much more than this. It is about –1 C outside. Despite the cold, even when it is –20 C outside, as long as we get some sunlight the passive solar design of our home keeps me warm. We’ve had about two weeks of sunny weather. The two weeks before that were bitterly cold and cloudy. Over the four week period, however, our savings in energy has been substantial. Solar photo voltaic panels supply the needed power for this notebook and the washing machine I hear in the background. We’ve done all this with no subsidies at all! We still have plans for a solar hot water heater that likely will reduce our electricity demand by another 25% an investment that will net us $300 and growing savings over the next several decades. As we add soil to our roof, we can expect reduced heating loads in the winter, and improved natural air conditioning in the summer. If subsidies supported these initiatives today I would have them all done by the end of the year! Everyone I know would do these things if they could be invested in with a low up-front cost and multi-thousand dollar annual savings. The government of Canada could do this by redirecting the subsidies for oil towards the needed financial support that renewable energy sources deserve. If we are serious about our children’s future and meeting our commitments to the Kyoto Protocol then we must make these changes today!

“All this sheds new light on the question of the viability of many of the alternative energy options. Imagine if the tens of billions of dollars spent on the fossil fuel sector and the related road transportation sector were spent instead on rail transportation or on developing alternative technologies—technologies that we know are feasible but which are said to be not yet fully cost-effective in a competitive marketplace. As we’ve seen, the whole notion of a ‘competitive’ marketplace is a sham. The fossil fuel industry isn’t forced to compete at all. On the contrary, it is massively subsidized by governments around the world, while competing technologies are barely supported. But the subsidies for the fossil fuel industry are largely invisible, and rarely acknowledged.” –It’s the Crude, Dude by Linda McQuaig