IMF: Subsidies for fossil fuels considerably higher than thought

4 August, Washington – The IMF has released a paper showing that global energy subsidies are expected to reach $5.3 trillion, in 2015, equivalent to 6.5% of global GDP. The IMF had previously calculated subsidies to be worth $2 trillion in 2011, a figure which has now been revised to $4.2 trillion. The countries of the EU are expected to spend a total of $329 billion (€303 billion) on fossil fuel subsidies in 2015, averaging 3.5% of their GDP, up from $295 billion in 2013.

The figures have been calculated as post-tax consumer subsidies – consumers paying below the cost of energy – with an adjustment to reflect the cost of damage to the environment and tax that should be applied to consumer goods. “The bulk of energy subsidies in most countries are due to undercharging for domestic environmental damage, including local air pollution – especially in countries with high coal use and high population exposure to emissions – and broader externalities from vehicle use like traffic congestion and accidents,” the IMF said.

The subsidy figure is expected to remain high due to increasing energy consumption, especially for coal, inflation and real income growth, as well as persistent undercharging for environmental and health costs. The revision of the 2011 figure is partly a result of inclusion of World Health Organisation data on harm to health from exposure to pollution.

The IMF estimates that eliminating energy subsidies could reduce deaths related to fossil-fuel emissions by 50% and fossil-fuel related carbon emissions by 20%, as well as creating revenues of $2.9 trillion in 2015. Advanced countries would gain enough revenue to halve corporate income tax, or cover around a quarter of public health spending.

Click to access the IMF Study, ‘How Large are Global Energy Subsidies?

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