100 Introduction to Renewable Biomaterials
sustainable low carbon economies. Probably the easiest method to promote such
change is phasing out subsidies to fossil fuels and creating a level playing ground
between renewable technologies and fossil-based technologies. Despite their obvious
environmental impacts fossil fuel technologies are subsidised in numerous countries
directly or indirectly very often at much greater extent than renewable technologies
are. These subsidies are defined by OECD as ‘any government action that raises the
price received by energy producers, lowers the cost of energy production, or lowers the
price paid by energy consumers’ [55]. The most obvious form of support for the fossil
fuel economy are cash payments to producers or consumers and tax exemptions, but
more often than not the subsidies have more subtle form. Common practice worldwide
especially where the energy companies are state-owned is price control. This way the
prices are often set below full cost of energy production, and the energy companies
receive various indirect incentives to cover the difference. Sometimes it is not the energy
producers or consumers but fossil fuel suppliers that are the biggest beneficiaries of the
indirect subsidies. The power producers are often obliged to purchase the fossil fuel
resource from (usually) domestic source at elevated prices and this way subsidise, for
example, inefficient mining industry. Even more subtle ways of subsidising fossil fuel
economy is utilisation of special labour laws for ‘sensitive sectors’, for example, coal
mining where practices like an early retirement age, productivity-independent bonuses
and other incentives are employed. Although widely utilised, there is little evidence in
modern economies that these subsidies generate any positive outcomes [55–58]. First,
subsidising fossil fuel–derived energy inevitably leads to higher consumption, waste
and lower energy efficiency. Second, the environmental consequences of increased
utilisation results in the deterioration of environment and human health. This leads to
higher costs of health services that economies need to bear. Third, in principle subsidies
are often described as a way to help poorer members of society to increase their quality
of life. In reality, however the largest beneficiaries of the subsidies are the richest in
the society. At the end of the day, it is rich citizens that use more energy than poor
citizens do. Last but not least, these direct or indirect subsidies are a burden on public
finances and drain financial resources from other vital areas. A thorough review and
abolition of these subsidies should be the first step of the transition towards sustainable
development.
Removal of the subsidies to fossil technologies should be followed by introducing
some form of general carbon taxation to promote zero and low carbon technologies.
Currently two approaches are considered: carbon trading and carbon tax. The carbon
taxation component should be at least equal and preferably higher to the indirect
(so-called externalised) costs that fossil technologies have on the environment, health
and climate change and should increase in predictable manner to generate enough
incentives to the market to invest in sustainable development. Two proposed mech-
anisms of carbon emission reductions carbon trading and carbon tax have different
economic mechanisms. Carbon tax sets the price of carbon dioxide emissions and
leaves to the market to determine the quantity of emissions reduced, carbon trading
(cap and trade scheme) sets the target of emission reductions and lets the market
determine the price of these reductions. As a result, their responsiveness to economic
circumstances also differs. For example, cap and trade system is resistant to inflation
asthepriceoftheemissionsissetbythemarketthatadjustspricesautomatically,
carbon tax need to be externally indexed to take into consideration inflation. On the
