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Fossil Fuels Account for 85% of Global Subsidies, IMF Warns

  • Environmental activists demonstrate outside the Royal Dutch Shell's annual general shareholder meeting

    Environmental activists demonstrate outside the Royal Dutch Shell's annual general shareholder meeting | Photo: Reuters

Published 18 June 2019
Opinion

A new IMF study shows that US$5.2 trillion was spent globally on fossil fuel subsidies in 2017 and the trend is not changing.

An International Monetary Fund (IMF) study released on May 2019 shows how fossil fuels still receive tremendous amounts of public fundings worldwide, despite nations committing to reduce carbon emissions and to implement renewable energy after the 2015 Paris Agreement.

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“Coal and petroleum together account for 85 percent of global subsidies,” the study states, pointing out the negative side effects caused by fossil fuels production on society as most of the fossil fuel costs are hidden or not always obvious.

In addition to direct money transfers of taxpayers money to fossil fuel companies, the effects in question involve costs of pollution, such as healthcare charges and climate change economic impacts.

“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,” said the report.

Most of the nations worldwide, headed by the United States (U.S.), Australia, and China, have continued to uphold, rely on and spend huge amounts of state funds in fossil fuel industries.

The U.S., for instance, gets 85 percent of its total energy from oil, coal, and natural gas. The country spent in 2015, US$649 billion on these subsidies which represented more than its defense budget and 10 times the federal spending on education. This is even more indefensible when we know that a recent study showed that up to 80 percent of the U.S. energy could be supplied by renewable sources.

The IMF study also explains that while fossil fuel prices continue to increase significantly, the price of renewable energy for its part has dropped.

And that is where the paradox lies, while renewable energy production is becoming cheaper than fossil fuels, many industry experts wonder why subsidies for the latter continue to grow.

The answer might be found in the fossil fuel lobby, which has actively worked in many countries to protect their subsidies, resulting in high-profit margins and avoidance of carbon taxes.

“Subsidies tend to stay in the system and they can become very costly as the cost of new technologies falls. Cost reductions like this were not feasible even 10 years ago. They have transformed the situation and many renewable sources are now cost competitive in different locations with coal," Simon Buckle, the head of climate change, biodiversity and water division at the Organization for Economic Co-operation and Development explains.

IMF chief Christine Lagarde said that the investments made into fossil fuels could be better spent elsewhere.

“There would be more public spending available to build hospitals, to build roads, to build schools and to support education and health for the people. We believe that removing fossil fuel subsidies is the right way to go," she concluded.

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