Distortions in energy markets

Energy markets are highly distorted by subsidies for nuclear power and fossil fuels:

  • Whose subsidies trump whose? (New York Times, 2011-09-22). Renewable energy deserves subsidies, its partisans say, because conventional energy sources have enjoyed bigger subsidies for decades. The latter is a hard proposition to quantify, but a new report by a venture capital firm that specializes in renewables takes a stab at it.

Without subsidies for nuclear power and fossil fuels, it is likely that most renewable sources of power -- with the possible exception of those that have still not reached the bottom of their cost-reduction curves and are still finding their feet commercially -- would be commercially viable without subsidies.

The Stern report said that climate change is the greatest market failure the world has seen, and that actions will be needed to compensate for that failure. Removing the subsidies for nuclear power and fossil fuels are the main actions that are needed.

Winding down the arms race of subsidies

Rather that piling subsidy upon subsidy, we should be aiming to wind down the arms race of subsidies, reserving them for where they are really needed:

  • Remove all subsidies from oil, gas and coal, as the G20 say they will do. There may be a case for providing support for carbon-capture and storage (CCS) until it is established.
  • Remove subsidies from nuclear power following procedures outlined in Section 4 of the Nuclear Subsidies report.Retain support for renewables that have not yet reached the bottom of their cost-reduction curves or where there are special reasons for providing support. Regarding the latter point, if, for example, the majority of people feel that onshore wind farms spoil the landscape (and that is by no means clear) there may be a case for providing a subsidy to cover the extra cost of putting wind turbines out at sea.

  • Remove support from renewable sources of power that have reached the bottom of their cost-reduction curves

See also: High-carbon fuel companies should pay their way too (Financial Times, 2012-09-21). Letter from Julian Scola, Communication Director, The European Wind Energy Association, Brussels, Belgium. "The fact is that governments across Europe could save themselves a lot of money, and hasten the phasing out of support for increasingly mature renewable technologies such as onshore wind, if they first removed longer-standing subsidies for more established technologies like nuclear and coal." And  Creating the Internal Energy Market in Europe (PDF, European Wind Energy Association): the report includes a recommendation to remove subsidies for coal, gas and nuclear power.

Raising the price of CO2 emissions

Given the need to decarbonise the world's economies, there is certainly a need to raise the price of CO2 emissions from the burning of fossil fuels. This could be of some help to the nuclear industry and some people in the industry have been pressing for a higher price for CO2 emissions. But a lot depends on exactly how the price of CO2 emissions is raised. Some relevant issues are discussed in the following subsections.

What happens when there is excess power?

If wind farms and nuclear power stations are, together, producing more power than people need, a lot depends on which of those two sources of power get paid. Unless consumers have full control over which source of power they will use and pay for, there is potential to create unfair subsidies.

Forms of support

A lot depends on the way in which the price of CO2 emissions is raised, see Raising the price of carbon: a back-door subsidy for nuclear power?.

Taking account of emissions from the nuclear cycle

In raising the price of CO2 emissions, it is important to ensure that emissions from the nuclear cycle are properly accounted for. In her book "Nuclear power is not the answer", Helen Caldicott says "The use of nuclear power causes, at the end of the road and under the most favourable conditions, approximately one-third as much carbon dioxide (CO2) emission as gas-fired electricity production." But this is only with the highest grades of ore. The use of poorer ores as a source of fuel for nuclear reactors "would produce more CO2 emissions than burning fossil fuels directly." In other words, "nuclear reactors are best understood as complicated, expensive, and inefficient gas burners." (p. 6).


Raising the price of CO2 emissions may be of some help to nuclear power but it would be even more helpful to renewables. With the changes outlined in 'Winding down the arms race of subsidies', it is unlikely that nuclear power would be commercially viable.