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Fossil fuel subsidies top $5 trillion worldwide, fair pricing would have cut emissions 28%, study says

A recent study projects that global fossil fuel subsidies totaled a staggering $5.2 trillion worldwide in 2017, and shows efficient pricing would have cut more than a quarter of global carbon emissions in 2015.

The incredible figures come from the International Monetary Fund, which defines subsidies as “fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations).”

The IMF notes that it uses a broader definition of subsidies than some. Its projections reflect “differences between actual consumer fuel prices and how much consumers would pay if prices fully reflected supply costs plus the taxes needed to reflect environmental costs and revenue requirements.”

It calls these “post-tax subsidies.” The figure the IMF gives for “pre-tax subsidies” is $296 billion worldwide — a much smaller number, but still a huge amount in direct subsidies, and one that doesn’t account for those “differences.”

As part of the methodology, the study considered the number of ways economists have attempted to value the cost of CO2 emissions, and came up with a value of $40/ton for 2015 emissions, rising at 3% a year. The Environmental Defense Fund has said $40/ton is the “current central estimate” of the social cost of carbon, but notes that many experts believe this underestimates the true costs of carbon pollution — perhaps severely.

The IMF found subsidies totaled $4.7 trillion in 2015, which equalled 6.3% of global GDP, before the projected rise to $5.2 trillion in 2017 (6.5% of global GDP). China was by far the largest subsidizer in 2015 ($1.4 trillion), followed by the US ($649 billion), Russia ($551 billion), the combined European Union ($289 billion), and India ($209 billion).

The main recipients of these fuel subsidies are clear:

About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies.

Simply instituting fair pricing for fossil fuels would have massive environmental and health benefits, in addition to economic benefits:

Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.

A recent study from the European Heart Journal notes that air pollution, mostly from fossil fuels, now causes more deaths than smoking.

The study does not attempt to account for subsidies for non-fossil fuels, but a brief footnote in the full report is enlightening:

Renewables subsidies in power generation, for example, were $140 billion worldwide in 2016 according to IEA (2017). Note, however, that efficient fuel pricing would remove one of the key motivations for renewable energy subsidies.

Electrek’s Take

Look at what we have done to ourselves, and are continuing to do to ourselves. Imagine explaining this concept to an alien. It boggles the mind.

We see the reason for the IMF factoring in the widespread effects of burning fossil fuels in its definition of subsidies. For those who’d rather use the narrower definition, the world still offered up nearly $300 billion in pre-tax subsidies in 2017. G7 countries provide about $100 billion in direct fiscal support each year to fossil fuels, with the US offering $26 billion annually. Most Americans want to reduce fossil fuel use. It’s way past the time to end fossil fuel subsidies and institute carbon pricing.

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