Should Energy be Subsidized?
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Case Details:
Case Code : ECON021
Case Length : 14 Pages
Period : 1990-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : -
Industry : Energy
Countries : Worldwide
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"The Dutch government will renew subsidies for green energy next year but
only for producers that can prove their energy is really green and does not
deprive people of food."
- Jacqueline Cramer, the Environment Minister of Netherlands,
in May, 2007.
"Not only should global economies end energy subsidies which encourage
excessive use of energy, they should also agree on a common higher price for
energy."
- Lawrence H Summers, Former US Treasury Secretary, in April, 2007.
"Encouraging reforms of subsidies that have considerable negative effects on
the environment and are incompatible with sustainable development, inter alia
by establishing a list of criteria allowing such environmentally negative
subsidies to be recorded, with a view to gradually eliminating them."
- An action suggested in the Sixth Environment Action Program , in July,
2002.
Introduction
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In January 2007, the US House of Representatives
passed legislation seeking to cut US$ 14 billion in oil and gas
subsidies over the next ten years and instead to pass on the amount to
companies engaged in the development of renewable energy technology and
the production of renewable energy. However, as of June 2007, the bill
was still languishing in the US Senate, with lobbyists working hard to
ensure that it did not become law. If the bill did become law, it was
expected to give a boost to the renewable energy industry. Some analysts
were, however, apprehensive that this step might have a negative impact
on the domestic oil industry in the US. |
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A reduction in oil subsidies was expected to lead to an
increase in the domestic price of oil, forcing the government to increase oil
imports.
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Analysts also argued that in order to maintain their
competitiveness, US oil companies would look to cut costs, including
through layoffs, and this would have a negative impact on employment in
the oil sector.
The increase in international energy prices in 2006-07 brought energy
subsidies into focus. According to economists, energy subsidies resulted
in inefficient use and over-consumption of energy in addition to being a
drain on the exchequer. They felt that while it was true that subsidies
allowed the poor access to energy, the government would have to keep in
mind the long-term impact of extending these subsidies on the economy
and on the environment. |
Should Energy be Subsidized ?
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