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...
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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. |
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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.
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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-à-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
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