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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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

Even so, around the world, there were many countries that continued with subsidies which promoted the indiscriminate use of non-renewable energy. This not only affected the finances of these countries but also caused harm to the environment.

In this context, proposals to shift subsidies from the non-renewable energy sector to the renewable energy sector were gaining currency. Some analysts were of the view that giving subsidies to develop energy from renewable sources would not only help save the environment but also improve the finances of many oil-importing countries, besides providing energy security.

However, others felt that diverting subsidies from the non-renewable energy sector (especially fossil fuels) was not a good idea as it would lead to sudden increases in the price of fuel.

Considering that the per unit cost of generating energy from renewable sources was higher than the cost of generation from non-renewable sources, the social cost of removing energy subsidies would be high, with reduced access to energy for the poor and increase in unemployment, they said.

On the other hand, with climate change becoming an important issue, analysts felt that there was an urgent need to control greenhouse gas (GHG)6 emissions.

It was argued that the money that was being used to subsidize non-renewable energy could now be effectively used to develop more efficient forms of renewable energy (Refer Exhibit I for a brief note on renewable energy). However, even as of 2007, renewable energy continued to be expensive vis--vis fossil fuels. Also, there were experts who felt that renewable energy too had certain drawbacks and could not be branded as fully eco-friendly.

 Excerpts >>

6] Greenhouse gases are components of the atmosphere that contribute to the Greenhouse effect. GHGs include water vapor, carbon dioxide, methane, nitrous oxide, and ozone.

 

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