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The politics of subsidies for particular energy sources and disincentives on alternatives


“Greenhouse gas emissions, if continued at the present massive scale, will yield consequences that are – quite literally – apocalyptic… If these predictions hold true, the combined effect would be the death of not just millions but of billions of people – and the destruction of much of civilisation on all continents.”

Or so said John Ritch, director general of the World Nuclear Association back in a much-quoted speech made in 2007 at the height of the Climate Change political frenzy. He then went on to link nuclear power with other major themes of concern, saying:

“As our world grapples with the challenge of a burgeoning population pressing against the limits of a fragile biosphere, nuclear power stands unparalleled in its capacity to generate electricity safely, cleanly and on a virtually unlimited scale.’”’ 

If the political ‘consensus’ about Climate Science has collapsed, and it certainly seems to have done, it lasted long enough for there already to have been one important outcome, one big winner. After the virtuous Kyoto protocol was negotiated countries that had turned away from nuclear (on account of its unsolved waste problems and the ongoing risk of nuclear meltdown causing environmental disaster) re-embraced it, specifically citing the danger to the planet from greenhouse warming. Even Eastern European countries, for example, literally in the “shadow of Chernobyl,” promptly signed up for replacements for their old Soviet atomic reactors worth a good $50 billion.

In the rush away from dirty, dangerous carbon, nuclear energy, that previously had been in the process of being phased out in countries like Sweden, Italy and the United States – made a miraculous return to favour. That’s why, as early as 2001, the International Energy Agency was able to announce that climate change had altered the future for nuclear energy or why in 2010 the British Royal Academy of Engineering, representing contractors involved in numerous nuclear power projects around the world, was confident to belligerently ask in a pamphlet called ‘Nuclear Lessons Learned’: “Does the Government need to do more to ensure investors select low carbon options for future electricity generation?”

But back to the early days, and Canada and Sweden were two key backers, publicly countries with a great sense of social and environmental responsibility and worries about coal-produced acid rain and, but privately, countries with a deep concern for their own, at the time struggling, nuclear industries. Similarly, when today Australia and the UK respectively attempt to relaunch the Global Warming lifeboat through a mix of energy taxes and energy hand-outs, industry lobbyists and not environmentalists are driving the decisions. In the UK, nuclear power is still the energy of choice for governments of both right and left, while in Australia, exports of gas, uranium, steel and other raw materials are for more lucrative than digging up coal.

In fact, the Intergovernmental Panel on Climate Change was from the start politically pro-nuclear. Its first chief, a Swede, Bert Bolin, was highly active in Swedish energy politics which relies on the two pillars of hydro and nuclear, and admired for having forced the German government to install expensive sulphur filters on its coal-fired power stations supposedly to reduce acid rain on Sweden. The second IPCC head, Robert Watson, was a research director at the World Bank with a reputation for actively promoting dams in the Amazon rainforest and nuclear energy for everyone else, while a third key climate change activist, a German called “Wolf” Häfele, not only invented the 20% figure for CO2 emission reductions that became the go-to figure for Climate Change politics for two decades but was a key figure in the development of a new type of nuclear reactor, the dramatically expensive “fast-breeder” as it is called.

According to the energy policy analysts, Aynsley Kellow and Sonja Boehmer-Christiansen, Wolf arrived at his influential 20% target by a peculiar route. Others would have gone for a higher number – likely 60% – but Wolf argued that the nuclear technology was not ready yet! This showed splendid aplomb, given that the debate was taking place in the context of the 1986 Chernobyl nuclear disaster that had spread a cloud of poisonous radiation over much of Europe and led to the ostensible phasing out of nuclear power in many countries. Yet, in Sweden, for example, just two years later, in 1988, Climate Change was cited as the reason NOT to phase out nuclear power in the country.

Because, even if it was not explicitly invented by it, Global Warming science could hardly suit the nuclear lobby better. Essentially, it is about directing previously unimaginable subsidies towards ‘carbon free’ energy, of which nuclear claims to be the only serious one at present, a trick achieved by skewing the debate towards ‘electricity production’ and marginalising the oldest forms of energy – wood, water power and animal dung – still a key energy source for many people in the poor world. Once nuclear has convinced everyone it is the key energy source, rather than the irrelevant and highly costly cherry on the cake (see chart) it places crippling costs on its fossilised competitors. At the same time governments are pleased to deny any ‘subsidies’ to the perennially unpopular nuclear industry.


Ingredients of the World Energy Cake

This is the Primary energy cake, consisting of both commercial, tradable energy and non-commercial, informal energy sources such as wood for heating.

Oil provides 48 TeraWatthours; One million tons oil = 4.5 TeraWatt hours. What is a TeraWatthour (TWh)? One TWh corresponds to 10 to the power12 watt-hours, or the energy required to heat approx. 50,000 houses in advanced industrial OECD countries for one full year.

Coal provides 39 TWh; Gas 30 TWh; and Renewables 18 TWh. Renewables other than hydro include wood, both commercial and non-commercial, animal dung, hydro electricity, solar heat and electricity, wind electricity, geothermal energy, non-wood/non-dung biofuels and others. Wood and dung are major sources of energy, along with Hydro-electric power, which contributes on its own some 3 thousand TWh or energy, approximately 2.5% of the total world energy mix.

Finally, Nuclear provided just 8 TWh . Nuclear secondary output – electricity – was about 2900 TWh in 2010. That’s what makes it the cherry on the world energy cake.

In calling black white in this way, they are aided by the fact that, as even the World Nuclear Association admits, a simple definition of subsidy is difficult to find. The usual assumption is that a subsidy is some kind of direct cash payment narrowest by a government to an energy producer or consumer. But this is just one way in which governments can stimulate the production or use of a particular fuel or form of energy – there are other much cleverer ways too. For example, governments can rig markets to either raise the prices customers must pay to help energy producers, or engage in a vast array of measures that reduce their costs. The so-called ‘feed-in‘ tariffs that encourage entrepreneurs to invest in solar panel arrays, or wind turbine parks, and which work by obliging electricity grids and hence customers to pay many times the going rate for the energy produced are an example of the former kind of subsidy. This trick is very popular with governments who typically take a cut of the artificially inflated energy costs as well as numerous other side taxes. By 2010 Feed-in tariffs were being used by governments across Europe, and in Canada, China and Israel and (at state, rather than Federal level) in the USA (notably California) and Australia.

Alas, a problem about this cunning concealed energy tax is that Feed-in Tariffs soon become fantastically costly to consumers as the take-up increases. In Germany, the cost of subsidies for solar power alone was expected to reach no less than 46 billion euros by 2030, while in heavily indebted Spain the take-up was so high that the government was forced to backtrack on its commitments after investments had been made.

Britain too is heavily indebted, but that never stopped the Climate Change bandwagon there. Here, for example, are some amazing figures particularly relevant to Australians’ contemplating their government’s new energy act, from the UK’s Department for Energy and Climate Change (that’s their new name), that were published in July 2009.

“The total cost of the increase in energy prices resulting from carbon emissions reduction and renewable energy polices is going to be around £5.7 billion per annum in 2010, and is set to rise under existing and proposed policies, to over £16 billion per annum in 2020. By that time, it will constitute around 2% of entire UK taxation – about the equivalent of 4 pence on the basic rate of tax today.”

In the UK, four pence on the basic rate is a hike in taxation of 25% for most people. Yet it seems as long as the tax is for ‘renewables’ – no one in the UK minds! That’s the power of ‘greenwash’. If beer prices are going up, there’ll be complaints, but if water meters are made compulsory, petrol tax is ramped up again, householders are told they must fit plastic windows – government’s know that people will accept it in the name of saving the planet. If the money is for building nuclear reactors though, it is a different story. Hence the ingenuity in hiding the cash trail.

The slush funds created for the energy industries are enormous. In Britain, a country with a relatively tiny annual GDP, the British government estimated the costs of implementing its green policies at … £324 – 404 billion! (In its Climate Change 2008 Impact Assessment…) Loads of money to build nuclear power stations and the grand tidal energy schemes of the German corporation E.ON. Good old E.On. Mind you, according to a Carbon Market Data, E.ON was in 2008 the second biggest emitter of CO2 in Europe (over 100 million tonnes of CO2). Not that the Greens seem to have noticed…

Free money is welcomed by the industry but as they point out, it still doesn’t make their particular form of power generation economic. So, even now, nuclear operators can often be found in regulatory circles demanding higher and higher carbon prices- perhaps €50 or even €100 euro a ton. EDF, with plans to build four new nuclear reactors in the UK, particularly warned the British government that it should set this sort of price for carbon permits if it wanted the corporation the ‘invest’ there.

Back in December 2009, at the time of the Copenhagen conference when many people expected an international agreement to make penalties for producing carbon dioxide mandatory on all the counties of the world, European exchanges were already trading carbon permits at the price of £14 a ton. Since nuclear power claims to be virtually emission free nuclear generators received free ‘carbon allowances’ that they were pleased to make massive windfall profits by selling.

Despite the fact that the Copenhagen Climate Conference was a debacle, and there is now, clearly, never going to be any international agreement on mandatory carbon prices, politicians in Britain, Australia and California have all set their own targets regardless. Of course governments had not really turned against their nuclear friends. They simply had moved on to offer other subsidies instead. One new sweetener for nuclear was to be counted as a ‘renewable’ energy source, and thus, for example, to take a share of things like the UK’s Renewables Levy that the government there imposes on electricity bills by obliging electricity providers to purchase ‘renewables’. For the UK nuclear industry, such a change in status would be worth up to £300 million a year to the industry, or £3 billion over a decade.

The bottom line is that for all its spurious technicism, energy politics is very simple. It is just about money. Whether nuclear power is carbon free, mostly carbon free, or partly carbon free has no lingering significance to creative financial industry players. The atom is always friendly because massive reactor investment proposals, directly or indirectly, will always generate good business.

In reality, there are unlimited sources of energy – but some are more profitable than others. That disastrous recent oil spill, thus, was just about the balance struck by BP between safety and profit. Equally, when Al Gore has his house powered with a geo-thermal system for heating and air conditioning and 33 solar panels he pays for them with the assistance of multi-million dollar stakes in green projects such as the Chicago Carbon Exchange and the Green Investment Trust, GIM investments.

The Noble Prize winning statesman knows more about money than Climate Science. That’s why when French climate sceptic Claude Allégre, invited ultra-Green Al to give his views on energy matters, a matter of great public interest in Paris, Gore accepted but only on condition that he was paid 200 000 euros. 200 000 euros – for an hour’s talk! (That makes Tony Blair look good value…)Plus three seats in first class on the plane from New York. (Al really must watch his weight..)

If it all looks a bit hypocritical, well, France’s own ‘top Green’, and ceaseless Climate campaigner who fronted several swingeing new energy taxes, Nicolas Hulot, lives partly in Paris and partly on his luxury island estate, and tops up his income with a royalty on the Renault 4×4 called Ushuaîa. As for environmental campaigning pop stars, Sting, king of the ‘rainforest foundation, has not one holiday home, but six! No wonder he needs a jet to fly between them.

The nuclear industry’s interest in Climate Change is no less hypocritical. International energy corporations (like E.ON of Germany and EDF of France) cheerfully build both nuclear power stations and ‘green energy’ parks, and enjoy two slices of the ‘low-carbon’ act. But because they cost about £4 billion each, nuclear reactors are still up to five times more expensive to build than the equivalent gas-fired plant and so the only way private investors will build them today is if governments step in to penalise competitors like coal and gas for their emissions of carbon dioxide.

The most significant strategy though today is to ramp up costs for the coal and gas industry. Despite its own love of subsidies, the nuclear industry is first to complain about those enjoyed by its great rival – coal. In 2010, some EUR 3.2 billion in coal subsidies “will be handed out”, moaned the WNA, by six EU countries: Germany, Hungary, Poland, Romania, Slovakia and Spain, all in order to safeguard 100 000 or so silly jobs! Indeed, the point is taken in Brussels – and mining subsides are being ‘phased out’ by a (selectively) competition-promoting European Commission. By comparison, the nuclear industry quietly accepts all its new subsidies, both European and elsewhere, such as the $199 billion gift that came about as a result of changes in tax rules related to decommissioning, under the 2005 Energy Policy Act in the USA.

Another tool of choice in the nuclear industry’s efforts to distort the energy playing field in its favour, is raise the issue of new supposedly deadly kinds of air pollution, such as sulphur and nitrogen oxides. As with the notion of Carbon taxes, the European Union has been in the forefront of research supposedly demonstrating the high ‘external’ costs of fossil fuels.

Back in 2001, a major, in the sense of very expensive, if not very substantial, US and European study of the external costs of various fuel cycles, called ExternE, focused on coal and nuclear, and claimed to have put “plausible financial figures against damage resulting from different forms of electricity production”.

The external costs considered were things such as the effects of air pollution on human health, crop yields and buildings, as well as occupational disease and accidents. The 2001 report excluded effects on ecosystems and the impact of global warming, but these were later added in despite the acknowledged and indisputable range of uncertainty in quantifying and evaluating them. Garbage was put in and indeed garbage came out.

The most environmentally minded thing about the ExternE report was that it basically recycled an earlier European study (Krewitt et al, 1999) that put environmental damage costs from fossil fuel electricity generation in the EU for 1990 at US$ 70 billion, while allowing the nuclear industry off scott-free. This was achieved by making calculations of the likely effects of radiation every bit as optimistic as that of the World Health Organisation, the UN body contractually obliged in such matters to follow the views of their colleagues at the International Atomic Energy Authority. A marvellously low risk from nuclear energy emerged which then was contrasted with aggressively high estimates of radiological impacts from mine tailings (easily shown to be exaggerated). All this fitted in very well with the various EU government’s political desires to cut back on subsides to their mining communities.

As for the nuclear industry’s famous external costs related to its never-started and never-ending tasks of waste management and decommissioning, well, these were not included as officially these have ‘already been costed and paid for’ by the industry. The end result was a report shows that in cash terms nuclear energy had a bare tenth of the external costs of nasty old coal. It averaged under 0.4 euro cents/kWh, which made it cleaner even than hydro, while coal had external costs over 4.0 cents, and gas ranged between 1-4 cents. Only wind showed up better than nuclear

So what’s all that prove? Only that science is as easily co-opted by politicians as politicians themselves are by lobbyists. But if these external costs were in fact included, the price of electricity from coal in Europe would double and that from gas would increase around 30%, and, at last, nuclear energy would be (almost) competitive.

The USA started as a co-author for the European study, but in the manner of the Kyoto Protocol earlier, soon dropped out. But not because it objected to the ill-judged political efforts to skew the energy markets. Rather it wanted to do the same thing its own way. The result was that in October 2009 a US National Research Council report that claimed a total of $120 billion in “hidden” external costs of energy production in the USA for the sample year studied of 2005. Like the European effort, the figures mainly relied on estimates of health damage and excluded the effects of climate change. Amongst energy generators, practically all the costs were attached to the coal industry, while all the prizes went to the nuclear lobbyists.

Martin Cohen is editor of the Philosopher and co-editor of This article draws upon research for The Doomsday Machine: The Real Costs of the World’s Most Dangerous Fuel, by Martin Cohen and Andrew McKillop (Palgrave, Spring 2012)

Philosophical Investigations, July 2011