In many countries such as Canada, oil and other fossil fuels such as coal and natural gas have historically been seen as the backbone of our industrial economy. For this reason, governments have directly subsidized the exploration, extraction and processing of these fuels through research and development money, tax credits and regulated prices. More recently, nuclear power has also been heavily subsidized by the federal government in Canada. These costs are not included in the calculations made by Ontario Hydro in comparing the relative costs of different sources of electricity. Such direct subsidies, therefore, influence both our choice of energy supply and the market price of different sources of energy.
Governments also subsidize energy prices in more indirect ways.
This is a significant amount, approximately equal to the market price of a barrel of crude oil. If the cost of safeguarding oil supplies were paid for by oil consumers, gasoline prices at the pumps would be much higher. This is illustrated in an exaggerated way by Figure 1. Another area in which governments indirectly subsidize a specific type of energy is nuclear power. In most countries, operators of nuclear power plants are not liable for the full costs of any accidents.