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The definition of subsidy

One observation I made about British Greenies quite a few years ago is that they used a different definition of the word "subsidy" from most of the rest of the population. I first noticed this rather devious practice in a report produced by Jonathon Porritt's Sustainable Development Commission quango in 2005 called "Windpower in the UK", which included the following paragraph:

"4.6 Cost of UK support mechanisms
The primary support mechanism for renewables in the UK is the Renewables Obligation (RO),
which was described in Chapter 2. The RO creates a market demand for renewable
electricity generation and does not require a Government subsidy the cost is passed on to
the consumer rather than the taxpayer. The RO will primarily assist commercially advanced
renewables such as wind, biomass and methane recovery as these lower risk technologies will be
most favoured by investors. To support other technologies at the development or pre-
commercial stage the DTI funds a number of research & development and capital grant
programmes to stimulate investment and innovation."

From the above paragraph it is evident that the Greenies don't regard windpower as being subsidised. To them, if the support doesn't come from the government writing a cheque or whatever, it's not receiving government support. The fact that the government imposes laws requiring citizens to provide support doesn't register with them as being a form of government subsidy.

I didn't think much more of this observation until quite recently when Chris Huhne took up the job of Climate Change and Energy Secretary. Now Huhne (and presumably the Lib Dem party as a whole) seem to use the same definition of a subsidy as the Greenies do. He insists that there can be no subsidy for nuclear power stations, and repeats this at every opportunity he can, but seems totally oblivious to there being a king's ransom of a subsidy (on a per kilowatt hour basis) paid out for renewable energy. The difference is that the latter is paid out directly by electricity consumers (including consumers who don't earn enough money to pay income tax) and doesn't appear on some government balance sheet.

Tim Worstall has written a couple of ASI blog posts commenting on Huhne's strange ideas of what a subsidy is:



The Greenie/Huhne definition of a subsidy can lead to interesting interpretations if applied elsewhere. Most people would regard the BBC as a heavily subsidised organisation, possibly the most subsidised organisation they could ever imagine, but technically speaking it doesn't receive any funding from the government, the funding is coming directly from householders who own TV sets. So presumably to Chris Huhne the BBC is as unsubsidised as ITV.

Re: The definition of subsidy

I remember under the Thatcher regime that road spending was investment and rail spending was subsidy (and before anyone mentions road taxes exceeding road spending a passenger on a train is another car not in front of you on the M6).

There is some sense in subsidising renewable energy in that these are new technologies, some of which might be useful but none of which can stand on their own two feet on a commercial basis at the moment, but the method seems wrong to me. Nuclear power is not new and should really be able to find private investors after 50+ years of ever-improving technology. The fact that it can't, and neither can any new power generation plant except, notoriously, gas-fired plant might well be due to the regulatory environment in the UK, and is definitely a sign that the government has to intervene, even if ideologically speaking it shouldn't.

That said, a per kilowatt-hour subsidy seems the wrong way to go. Any subsidy should be primarily for R&D, and construction if needs be. The ongoing costs for the electricity generated should be more than manageable (after all the energy source itself is basically free), in other words it should be possible to set a competitive price for a kWh of green electricity and still be profitable. If it's not, then it's not time to be building this stuff large scale, but one can hardly object to research devoted to bringing down the cost, hence making it more competitive, at least in a future world of increasing energy prices.

One thing they are doing in Germany is forcing energy companies to buy surplus from people with (notoriously inefficient) solar panels, at 30 eurocents per kWh. As the retail price of electricity here is around 20 eurocents per kWh, it's a loss maker for the energy companies, who have to put up their prices accordingly. The free-trade solution is if you are eco-friendly and want exclusively solar, you can pay for it. There is a genuine premium to be had on green electricity - all the power companies here have green-only options, but no reason not to let it find a market price like standard electricity.

Personally, having just bought a house with some 100 square metres of flat roof, I might look into how quickly the investment would recoup itself. The fact that the panels are next to useless in 20 years is neither here nor there. But if we could get photovoltaics to even 10% efficiency and means of storage that didn't require several tons of lead, alternators and the like in every basement, our energy problems would be effectively over.

Interestingly, flying to London the other day I noticed the North Sea off both the Dutch/Belgian and Kent coasts seemed full of windmills. No doubt these have much higher installation and maintenance costs than onshore farms, but does anyone know offhand if they are making money? I wonder how green they are overall given that presumably shipping lanes have been affected.

Re: The definition of subsidy

"There is some sense in subsidising renewable energy in that these are new technologies, some of which might be useful but none of which can stand on their own two feet on a commercial basis at the moment, but the method seems wrong to me."

I see you're swallowing the Greenie propaganda line on renewable energy consisting of new technologies James. The Greenies, assisted by environmental journalists, are very good at spinning any technology they are in favour of as being 'cutting edge' and spinning any technology they're opposed to as being a 'dinosaur technology'.

These two links give some material (mainly a collection of quotes from books) on why solar power and windpower cannot really be regarded as 'infant industries'.



I suspect that the infant industry argument is the main reason that these technologies get so much subsidy money thrown at them, though you rarely hear British politicians actually state this argument (I can only remember Vince Cable specifically using the argument). As some sort of evidence for this, it is notable that airships have never been able to establish themselves as a subsidised Green technology. Greenies occasionally try to push the idea of using airships as a low carbon alternative to aeroplanes, but I suspect that because of the colourful high-profile past of airships, politicians are aware that the airship industry is obviously not an infant industry.

Re: The definition of subsidy

I don't think I'm swallowing the "infant industry" propaganda. They are only infant in being not commercially viable but the same can apparently be said for the "dinosaur" technologies such as nuclear, which also have a hard time finding private capital, presumably because they are not particularly profitable. I think solar has potential simply because of the vast amounts of energy falling on the surface of the earth even as far from the equator as we are, but it needs orders of magnitude more efficiency to be commercially viable. That might be physically impossible, but we won't find out without investment and that investment isn't going to come from the private sector. So as reluctant as I am to see taxpayer money spent on anything, it seems the only solution.

That said, direct investment in research would be far preferable to the current system which amounts to price manipulation in an attempt to make current technologies look economically viable. The money thus spent therefore gets put into manufacturing the current woefully inadequate systems rather than trying to develop adequate systems. I suppose at least it puts some competitive pressure on to improve manufacturing techniques to get costs down, and that could be beneficial. That said I have seen installations capable of delivering a few kilowatts during the day. Combined with a functional storage system that would be adeqate for pretty much any household to go entirely off-grid, but take away the subsidy and it doesn't make economic sense over the lifetime of the installation.

We derive a great deal of benefit from the innovation humanity has come up with over the last 6000 years of civilisation. As a result, I don't have a problem with being made to invest some of my effort into making life more bearable for future generations either. Provided it is done in as efficient and effective a manner as possible.

Re: The definition of subsidy

Again, I think Jame's exposition is correct. Though subsidy has masked the development of solar power, commercially it has halved in cost over the past two years, mainly due to the efforts of the Chinese.

It must be remembered that historically, the development of new technologies has always been a rocky road, with initial failures; stealing and infighting; supression; poverty for some of the progenitors and qualification even for some of the successes.

Re: The definition of subsidy

I would expect that most people in the forum, myself included, would regard the age of an industry as not being a particularly important factor in deciding whether to give it a subsidy or not. But to some politicians, the age of the industry is the most important parameter. The idea of only giving support to infant industries is particularly strong within the Lib Dims. To get some idea of what I'm talking about, Google the following: "vince cable" "infant industry".

On Orde's point that solar power has halved in cost thanks to the efforts of the Chinese, my understanding of that is that the Chinese have substantially reduced the cost of making solar panels simply by dumping a hazardous waste by-product rather than through a genuine efficiency improvement. In the developed world, the hazardous chemical silicon tetrachloride produced in the manufacturing has to be processed and recycled at considerable expense, but in China they can just dump it, and basically wherever it is dumped turns into a wasteland. If it wasn't for the fact that the dumping is associated with a politically correct product, the Green lobby and environmental journalists in the West would raise a substantial amount of fuss over the issue.


Re: The definition of subsidy

I am shocked but unsurprised by Dave's assertion that waste silicon tetrachloride is being dumped by Chinese solar cell manufacturers nor the silence on the subject by the western pc media. It seems my description of technological progress as a rocky road is in this case, literally true!