Myth 6: Fossil fuels are more economically viable than renewables

Finance
Economics
Energy
Sustainability

Belle Mellor

Fossil fuels have reached an emperor’s new clothes moment – the reflection in the mirror is not looking good and there’s nary a fig leaf to hand. For years the industry has played up the high costs of renewables and painted a gloomy picture of the technological advancements required. But the technology has caught up – and both installation and generation costs of renewables have dived.

So even with oil prices at a historic low and coal still plentiful, renewables are giving fossil fuels a run for their money. In 2013 in Australia, the price of energy from wind power had fallen below that from new build coal- and gas-fired power stations. This is comparing like with like – energy from Australia’s old coal-fired power stations dating from the 1970s and 80s is cheaper, but only because their construction costs have been recouped.

Michael Liebrich of Bloomberg, the financial data giant, observed: ‘The fact that wind power is now cheaper than coal and gas in a country with some of the best fossil fuel resources shows that clean energy is a game changer which promises to turn the economics of power systems on its head.’1


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It’s a similar picture elsewhere. In 2014 in the US, both wind- and solar-generated energy came in lower – and even went one better. Emily Williams of the American Wind Energy Association told The New York Times: ‘We’re finding that in certain regions with certain wind projects, these are competing or coming in below the cost of even existing generation sources.’2 And this year onshore wind power in Britain also beat its competitors. According to Bloomberg: ‘The world is now adding more capacity for renewable power each year than coal, natural gas and oil combined.’3

It’s blindingly obvious – with improved technology pushing costs down, there is no escaping the fact that the fuels concerned, wind and air, are absolutely free. Even water resources for wave power do not need to get ‘used up’.

Myth Six graph

All the more reason to call for greater govern­ment subsidies and investment in technologies to crack the problems that so far can’t be dealt with by renewables – such as fuelling heavy transport – and upscaling output. Because the news on the oil front is not as rosy as the low prices at the pump suggest. The US, currently producing the world’s largest oil surplus, is going for bust. But large parts of the industry are in trouble trying to maintain the low prices. Around 75,000 jobs have already been lost.4

Meanwhile, the frackers are deep in debt – they have spent faster than they made money, even when oil prices were high. In the first quarter of this year they were spending $4.15 for every dollar earned selling oil and gas.5 It’s anyone’s guess how much longer this situation will continue.

But what is truly unsustainable is the environmental damage of fossil fuels. If one were to try and monetize it, as the IMF did earlier this year, then not asking fossil-fuel producers to pay up amounts to an eye-watering subsidy. The IMF calculated it as a global subsidy to fossil-fuel companies of $5.3 trillion a year – or $10 million every single minute – equivalent to 6.5 per cent of the world’s GDP. Of this just six per cent was direct subsidies on fuel; the rest was the estimated cost of environmental damage (including the health bill caused by air pollution) paid for by all of us. This the IMF terms ‘post-tax subsidies’ and refers to their ‘perverse environmental, fiscal, macroeconomic and social consequences’.6

Of course, such calculations cannot cover everything. It would be obscene, for example, to put a monetary cost on a life cut short due to fossil fuel-related air pollution.

See our recent publication NoNonsense – Renewable Energy by Danny Chivers for a practical blueprint for fairer, cleaner energy for all. nin.tl/renewablesbook

  1. Bloomberg, ‘Renewable energy now cheaper than new fossil fuels in Australia’, 7 February 2013, nin.tl/ozrenewables

  2. nin.tl/renewables-win

  3. Tom Randall, ‘Fossil fuels just lost the race against renewables’, 14 April 2015, nin.tl/lost-race

  4. Richard Heinberg, ‘Goldilocks zone for oil prices is gone for good’, Reuters, 24 March 2015, nin.tl/gone-for-good

  5. Asjylyn Loder, ‘The shale industry could be swallowed by its own debt’, Bloomberg, 19 June 2015, nin.tl/shale-debt

  6. IMF Working Paper, How large are global energy subsidies?, 2015, nin.tl/IMF-subsidies

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