The world’s governments may profess to want to halt climate change, but, in their spending to make fossil fuels as cheap as possible, you might say they continue to exacerbate the problem.
Governments reduce the cost of oil, gas, and coal in various ways, including tax exemptions and R&D help, and we’ve seen before various estimates for the total amount of subsidies on offer. In 2013, the Overseas Development Institute, a London think tank, put the level of subsidies at $523 billion. Now comes a far larger estimate from the International Monetary Fund, which says public support for fossil fuels amounted to an eye-popping $4.9 trillion in 2013 (and will rise to $5.3 trillion this year).
How come the IMF’s estimate is so much larger? The reason is because it includes not only direct support, but also for the way of fossil fuel producers and consumers fail to pay the full cost of pollution–that is, things like the damage to people’s health from poor air, and the impact of climate change (the fund calls these “post-tax subsidies”).
“Global post-tax energy subsidies–after incorporating the most recent estimates of the environmental damage from energy consumption–are substantially higher than previously estimated,” the report says.
China accounts for the largest share of subsidies, at $2.3 trillion, followed by the U.S., at $700 billion and Russia, at $335 billion. Petrol products get the most pre-tax subsidies (i.e. traditionally-defined support) while coal gets the most unconventional help. In fact, the IMF says coal’s subsidies are worth about 4% of global domestic product.
Some commentators have argued that the analysis is a bit of a stretch. For one, it includes the cost of road accidents, even though these aren’t really attributable to fossil fuels directly. For another, you might say that pollution is a side-effect of fossil fuels, not something actually caused by government subsidies.
Then again, the main point stands: fossil fuel pollution isn’t adequately priced in the economy given all its ill-effects. And until governments recognize this, we won’t see less use of fossil fuels–we’ll see just as much.
The good news is that countries could see a total of $2.9 trillion of social benefits if governments did away with subsidies altogether, the report says (presumably people would use less fuel if it was more expensive). Also, now is a particularly good time for ratcheting down that support. With oil prices at a historic low, it’s easier for governments to reduce subsidies without causing undue pain to consumers.