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The long goodbye to fossil fuel subsidies



Ben Goldsmith, partner at sustainable investment group WHEB, outlines three reasons why global fossil fuel subsidies will not last a generation.

Fossil fuel subsidies are a familiar topic in environmental circles. But, even so, an annual increase in global hydrocarbon subsidies of 30% to $523 billion went relatively unremarked when it was announced by the International Energy Agency in late 2012.

Combined with the scale of subsidy is the sheer complexity of the support. The Organisation for Economic Co-operation and Development (OECD) has counted over 250 separate mechanisms, ranging from direct consumer subsidies, for example by keeping retail fuel prices artificially low when compared with an international reference price, to producer support, ranging from underwriting risk, selectively reducing, rebating or removing taxes that would otherwise be paid or transferring funds directly to producers.

In spite of the scale of these subsidies and the complexity in their provision, there are fundamental factors at work which ultimately will make fossil fuel subsidies unsustainable and will lead to their decline and allow other forms of energy to compete more easily.

First, in the last 10 years or so the prices of many soft and hard commodities have increased and become more volatile. According to a report written by consultants MJ Bradley & Associates for a US taskforce on natural gas markets, “global commodity prices on the whole appear to be getting more volatile, having shifted from a fairly calm 15-year period from 1990 to 2004 to an upward trend from 2004 to 2010”.

Clearly the advent of cheaper shale gas has altered the trend in the US, but even here price volatility is still expected to remain an issue. As James Rogers, CEO of Duke Energy, put it, “Ben Franklin said there are two certainties in life: death and taxes. To that, I would add the price volatility of natural gas.”

Add global geopolitics and the strategic vulnerabilities in energy supply chains – an issue not lost on groups determined to antagonise the west – and continued price volatility is inescapable.

This volatility, combined with price increases in many parts of the world, exposes governments to a subsidy gap that is both unpredictable and, most likely, widening. Renewable energy by contrast invites a narrowing cost gap – because of declining equipment costs, ostensibly zero fuel costs, and little dependence on unstable supply chains.

Secondly, pressure is building for greater transparency and accountability in the fossil fuel industry. Reforming subsidies is politically difficult due to voters’ dependence on expensive forms of hydrocarbon energy and is, in the words of the OECD, “not easy due to the vested interests of those that benefit from them and the limited available data”. However, more transparency is being delivered by projects such as the 2013 OECD Inventory of Support to Fossil Fuel Production or Use.

The energy industry also moved down the Edelman Trust Barometer in 2012, enjoying the trust of only 53% of those surveyed. An increasingly unpopular industry, defending expensive subsidies, is clearly not well-placed to escape the moving frontier of better governance and accountability which has already swept many industries before it.

Finally, energy users can be expected to become increasingly autonomous in their consumption of energy. Reduced demand for electricity plays a part.

The chairman and CEO of the US utility Xcel believes energy efficiency is dampening demand in the US by 0.7% per annum. In 2012, most major European countries also saw reductions in energy demand, with a significant part due to governmental energy efficiency initiatives.

At the same time, energy users are increasingly producing their own electricity. In Germany, where renewables are furthest advanced, 37% of renewable energy generation infrastructure is owned by households. Utilities and financial investors are second with 25%, with farmers at 20% and industry at 16%.

In the UK, over a third of UK businesses are also considering generating renewable energy on their premises, the principal reason being a desire to control energy costs more effectively. These shifts won’t happen across Europe overnight, but they are progressively weakening public support for fossil fuel subsidy paid for by taxpayers.

Subsidies for fossil fuels have existed for as long as the industry. It is perhaps no surprise that, in spite of calls by the OECD and the G20 to phase out harmful fossil fuel subsidies and echoed in person by Barack Obama, the reality has proved extremely hard to deliver.

Indeed, when new forms of fossil fuel are discovered, such as the recent shale gas finds under Blackpool in the UK, they are immediately welcomed with the announcement of new tax breaks.

The question is: are such tax breaks merely delaying our inevitable energy transition? I would argue they are, and that accelerating rather than delaying the advent of a level playing field for different energy sources is in the greater collective long-term interest.

Ben Goldsmith is a partner at WHEB. This article originally appeared in the second issue of WHEB’s magazine, WHEB Quarterly, which is published every three months.

Further reading:

Inquiry launched to ‘get to the bottom’ of UK energy subsidies

Governments are throwing ‘green money after brown’

Ditch energy subsides for a better world, says IMF report

The real energy subsidy scandal

What have subsidies ever done for us

Articles, features and comment from WHEB Group, an independent investment management firm specialising in opportunities created by the global transition to more sustainable, resource efficient economies. Posts are either original or previously featured on WHEB’s blog or in its magazine, WHEB Quarterly.


How Going Green Can Save A Company Money



going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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5 Easy Things You Can Do to Make Your Home More Sustainable




sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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