The International Monetary Fund (IMF) has just published a report showing that almost 9% of all annual country budgets are spent supporting oil, natural gas and coal industries through direct subsidies, consumer rebates and avoided taxes on pollution. The report estimates that worldwide subsidies to fossil fuels total $1.9 trillion [€1.5 trillion] – the equivalent to 2.7% of global GDP, or 8% of government revenues, the IMF says.
Wind energy is frequently criticised in the media and by some politicians because it receives government support – which is true. But, have those who raise these views ever stopped to think about the enormous sums in government support fossil fuels have received over their lifetimes – and still do as the latest IMF data testifies?
As a means of comparison, in 2011 alone the International Energy Agency estimated that global fossil fuel direct subsidies were worth $523 billion, compared to $88 billion for renewables.
Fossil fuel subsidies in advanced economies
Today, in advanced economies, fossil fuels do not get much the way of direct subsidies – although they do still exist, for example Germany spends 0.07% of its GDP supporting coal and the US spends 0.05% of its GDP on petroleum. But fossil fuels do continue to benefit from subsidies in those economies in the form of mispriced taxation levels.
In advanced economies, “subsidies often take the form of taxes that are too low to capture the true costs to society of energy use, including pollution and road congestion,” the IMF said. “Taxes imposed on energy are not high enough to account for all the adverse effects of excessive energy consumption, including on the environment,” says the David Lipton, First Deputy Managing Director of the IMF.
Taking a few individual countries for example, Belgium spends 0.2% of its GDP on gas ‘post-tax’ subsidies and 0.9% of its GDP on coal subsidies; the UK spends 0.2% on gas and 0.2% on coal while the US spends 2.4% of its GDP on petroleum subsidies, 0.2% on gas and 0.6% on coal (see page 57 of the full IMF report).
Renewables, meanwhile, do receive support in the form of direct subsidies, but – in advanced economies alone – can these really be compared to the costly harm fossil fuels do to our health and the planet – now put into figures in the IMF report – plus the cost of importing fuels in the first place?
Moreover, what does the IMF think is the incentive for stopping subsidies?
“Subsidy reform can lead to a more efficient allocation of resources, which will help spur higher economic growth over the longer term,” the IMF says – a strong argument in the ongoing climate of economic uncertainty that surrounds us.
It also thinks that correcting post-tax subsidies alone would reduce global warming greenhouse gas emissions by 13% in advanced economies.
Fossil fuel subsidies in developing economies
The report also delves deeper into the effects of fossil fuel subsidies in developing economies – where the majority of direct fossil fuel subsidies are handed out. “Energy subsidies are highly inequitable because they mostly benefit upper-income groups,” says the report. “On average, the richest 20% of households in low and middle income countries capture six times more in total fuel product subsidies (43%) than the poorest 20% of households (7%),” the report says. This money could be better spent on health, education and social protection which would have a more direct positive impact on the poor.
The IMF report offers a way out of our addiction to fossil fuel subsidies including a phased-in introduction of price increases, comprehensive communication on the benefits of phasing-out fossil fuel subsidies and institutional reforms that depoliticise energy pricing.
“To me, the bottom line is that energy subsidisation is a major global problem, but it is a problem that can be solved,” Lipton said.
Meanwhile, the National Geographic has developed a very interesting global map of subsidies to fossil fuels here.