Fossil fuel subsidies to hit $5.3 trillion in 2015, says IMF study

Governments could cut 20% of carbon emissions at a stroke if they stopped subsidising oil, gas and coal

Heavy pollution shrouds sunset in Beijing (Pic: Theis Kofoed Hjorth/Flickr)

Heavy pollution shrouds sunset in Beijing (Pic: Theis Kofoed Hjorth/Flickr)

By Ed King

Subsidies for fossil fuels that cause climate change have soared since 2013, a new study from the International Monetary Fund has revealed.

Oil, gas and coal costs will be subsidised to the tune of US$5.3 trillion a year in 2015. The last time the IMF ran the data it calculated they were worth $1.9 trillion.

Economists say the latest figures are more accurate as they represent the “true” cost of energy, which includes the environmental, health and climate impacts of burning fossil fuels.

“Over half of the increase is explained by more refined country-level evidence on the damaging effects of energy consumption on air quality and health,” IMF officials Benedict Clements and Vitor Gaspar wrote in a blog.

The figure is larger than the health spending of all the world’s governments combined, a reckoning the pair called “shocking”.

(Pic; IMF)

(Pic; IMF)

Coal is the biggest recipient of polluting subsidies, the IMF found, given its combined impact on air quality and high carbon emissions.

“The most dramatic difference, compared with the pre-tax figures, is for coal which is the biggest source of post-tax subsidies, amounting to 3.0% of global GDP in 2011 and rising to 3.9% in 2015,” says the study.

The World Bank and IMF have been campaigning hard for countries to stop subsidising fossil fuels, arguing it can help stimulate stronger and more inclusive growth.

In the past three year’s leaders at the Major Economies Forum, G20 and G7 have all called for an end to harmful subsidies.

Report: European Commission drops demand to cut fossil fuel subsidies

Earlier this year US secretary of state John Kerry said coal subsidies were “simply destructive”, but the IMF research suggests high levels of funding are still common around the planet.

The largest national offender is China, which when pollution is taken into account, offered a $2.3 trillion subsidy to its one billion energy consumers this year.

It’s followed by the United States (US$699 billion), Russia (US$335 billion), European Union ($330 billion), India (US$277 billion), and Japan (US$157 billion).

UN talks

The news comes as leading economies meet in Berlin to discuss plans for a global climate treaty, due to be signed off in Paris later this year.

Slashing subsidies this year could cut carbon emissions 20% and boost government revenues $2.9 trillion says the IMF, and raise what it terms “economic welfare” by $1.8 trillion.

“Conditions are ripe to decisively engage in energy taxation and energy subsidy reform, further favored by lower international oil prices and low inflation,” said Clements and Gaspar.

“Steps at the national level could hasten progress at the global level ahead of the Paris climate change summit in December.

“By acting local, and in their own best interest, policy authorities can contribute significantly to the solution of a global challenge.”

Read more on: Climate finance | | | | |