Subsidies Examples: Industry Subsidies

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Subsidies can play a role in reducing industrial sector emissions of GHGs, stimulating energy savings, and creating a larger market for energy efficient technologies. Subsidies can also encourage the adoption of existing energy saving technology in the manufacturing and process industries.

 

Financial incentives, including subsidies, grants, favorable loans, reduced taxes, tax credits, and tax deductions, are effectively used to stimulate investment in energy saving measures by reducing the investment cost. Twenty-eight countries, primarily in Europe, provide grants or subsidies for industrial energy efficiency projects. For example, in Japan, the New Energy and Technology Development Organization pays up to one third of the cost of each new high performance furnace, projecting a 5% reduction of Japan’s total energy consumption. These financial incentives may be provided in fixed amounts, as a percentage of investment (as in Japan), or in proportion to the amount of energy saved.

 

When evaluating an industry subsidy, it is necessary to engage in a case-by-case determination of whether the benefits outweigh the costs. Subsidies are ineffective when given to an investor that would have made the energy efficient investment without the additional financial incentive. This problem can be addressed by restricting subsidies to particular target groups and technologies. For example, the United States Department of Energy Industrial Technologies Program’s primary role is to invest in high-risk, high-value research and development. Research suggests that it is beneficial for governments to identify technological barriers and subsidize solutions that improve performance, while allowing the private sector to bear the risk and capture the rewards of commercializing that technology.