Mapping the financial and organizational interdependencies between the Dutch State and the fossil fuel industry

In this thesis, the financial and related organizational links between the government and the fossil fuel industry are mapped, creating an overview of where exactly such ties can be found – while reflecting on the effect these relationships have on the development of the energy transition in the Netherlands. 

The energy transition, moving from a (centralized) fossil fuel based system to a (decentralized) renewable based system, has been on the agenda in the Netherlands for decades. Nevertheless, the uptake of renewable energy is slow, with around 5 percent of the total primary energy supply coming from renewables in 2016. Within transitions literature this slow transition has been attributed to the strong relationships between the Dutch government and the fossil fuel based energy regime. In this thesis, the financial and related organizational links between the government and the fossil fuel industry are mapped to test this hypothesis, creating a complete overview of where exactly such ties can be found, and the effects of these relationships on the development of the energy transition in the Netherlands are evaluated.

To map and evaluate these relationships a framework is developed, organized around the value chains of oil, coal, and gas and encompassing the exploration and production, transport and storage, processing and refining, sales and distribution, use (consumption) of fossil fuels, and fossil fuel related R&D. It was found that the government is heavily involved in the energy regime at the national, regional, and municipal level through diverse channels such as (semi) government owned enterprises, resource ownership, subsidies and taxes, investments, and government organizations. Government ownership includes, for example, ports and airports, utilities, R&D institutes, and gas and oil production and/or transport and processing entities.

When quantifying these relationships it turned out that, in 2015, around 12 percent of the income of the national government was generated using fossil fuels, with an all-time high occurring in 2013 of around 18 percent – coming from sources such as natural gas revenues, energy and fuel taxes and fees, and dividends from state-owned enterprises. These numbers are likely to be a conservative estimate due to the exclusion of income tax and VAT receipts from fossil sources. However, due to earthquake related measures and price drops, the natural gas related income of the government has dropped considerably in recent years. The estimation is that the government spend around 4.5 billion euro on fossil fuels in 2015, of which around 500 million euro in direct spending and the remainder in tax allowances for international aviation and marine transport.

The strongest connections between the government and industry are in the gas sector running through the (partially) state-owned enterprises Gasunie, GasTerra, and EBN. Through these entities the government is involved in exploration and production, transport and investment in new (foreign) pipelines, processing, decommissioning, and in dealing with liabilities arising from external effects of production such as earthquakes.

Lower level governments such as municipalities and provinces are linked to the energy regime through port ownership (especially the ports of Amsterdam and Rotterdam are highly fossil), utilities, gas distribution networks, and small receipts from natural gas production. For example, the municipalities of Rotterdam and Amsterdam, respectively, receive around 80 and 50 million euro in dividends annually, around half of which could be linked to fossil fuels. On the other hand, the smaller ports of Groningen and Zeeland, which are to a lesser degree dependent on fossil fuels, require financial support from their municipal and provincial owners to run their operations.

On the basis of the found ties it is concluded that the Dutch government faced, and continues to face, strong incentives to maintain the status quo of a fossil based economy, slowing the energy transition in the Netherlands. If the Dutch government is really committed to the energy transition a controlled phase-out of the use of fossil fuels, and a related disentanglement of interests and finances, is necessary. In such a scenario the government revenue streams from fossil fuels will come under further pressure. For example, an accelerated transition to e-mobility would hit the, currently, lucrative revenue streams of fuel and excise taxes. The government will thus need to prepare for the (financial) consequences of a fossil fuel phase-out and look for alternative revenue streams. On a positive side, some existing financial ties with the regime could also be used as a leverage to accelerate the energy transition. For example, by using publicly owned enterprises to invest in renewable energy. In this light, the recent decision by several municipalities to sell their stake in the public utility ‘Eneco’, with a high installed capacity of wind energy, and despite its profitability, is disappointing and a missed chance to support the energy transition. This further underlines that a drastic change in approach by the government when it comes to its relations with the fossil fuel industry is  necessary for the energy transition to accelerate and succeed.

Citation

Oxenaar, S. (2017). Mapping the financial and organizational interdependencies between the Dutch State and the fossil fuel industry. Master’s thesis, Humboldt University, Berlin, Germany and DRIFT, Rotterdam, The Netherlands.

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Date
August 29, 2017