3E Intelligence

Energy and special interests

Martin Wolf is without any doubt one of the best European economic journalists of his time, although I do not always agree with his neo-liberal “let’s leave everything to the market” politics.

Today, the FT columnist launches a brilliant attack on the political support and subsidies for biofuels which he sees driven by “well-organised special interests“.

Wolf calls these subsidies “farm programmes masquerading as answers to energy insecurity and climate change“. He uses the recent Global Subsidies study of the International Institute for Sustainable Development to illustrate the foolishness of these very costly policies (see on this also my blog post from 4 October).

Wolf also rebuffs the five “rationalisations” that are used to justify the biofuels subsidies:

  • these subsidies reduce farm support payments
  • they lower petrol prices
  • they reduce reliance on risky fossil fuels
  • they are an efficient way to reduce greenhouse gas emissions
  • they are only needed to establish the infrastructure.

This is then Wolf’s diagnosis which I can indeed agree with, but then the FT journalist moves on to the question “what to do?”

First the “negative” solutions: “eliminate increasingly popular (because apparently costless) mandates to use specific quantities of biofuels, since these shift all the risk of fluctuations in demand and supply of foodstuffs on to their use as food; discipline the stacking of subsidies on one another; and eliminate all open-ended supports for production before these become impossible to reverse“. No problem with most of those recommendation again, although I think a moratorium on first-generation biofuels might be easier.

Then Wolf’s “positive” ideas: “define the objectives and instruments of policy precisely, in terms of the overall goals of energy security and reductions in emissions of greenhouse gases; create a single global price of carbon that governs all activities; make producers compete for any support that is offered; let the markets decide on sale of flexible-fuel vehicles (and indeed the energy efficiency of vehicles); and, above all, move to free trade in biofuels”.

A lot here again with which I have no problems except for the “markets” bit. First of all, as the Stern report has clearly stated: “climate change [and I am so free to add energy insecurity] is the biggest market failure of our time”. Secondly, none of our energy sources has and can do without government support. If nuclear would not have had very generous subsidies in the past (and the present) we would not even have the debate on an energy renaissance. So the issue is not the subsidies, the problem is the special interests and their lobbying power! That being said, subsidies should be carefully considered, democratically decided and should not only follow an economic rationale but on sustainability rationale.

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