Analysis by the International Monetary Fund (IMF) shows that global fossil fuel subsidies amounted to $5.9 trillion in 2020, equivalent to 6.8% of GDP.
The analysis was released ahead of the pivotal COP26 climate summit in November, where leaders are expected to put forward ambitious proposals to keep the 1.5C target agreed in Paris alive. This target is in great doubt following on from the IPCC report released in August, which showed that 1.5C is moving increasingly out-of-reach.
According to the IMF, subsidies were split into two strands:
- Explicit subsidies – these reflect “undercharging for supply costs” and amounted to around 8% of the total subsidies in 2020 or $0.45 trillion.
- Implicit subsidies – these encompass “undercharging for environmental costs and foregone consumption taxes” and amounted to 92% of the subsidies in 2020
Questions will rightly be asked about why governments continue to subsidise fossil fuels in such a reckless manner given the stark climate science of where we’re heading as a result of our rising emissions.
The countries and regions that contributed most to fossil fuel subsidies in 2020 were listed by the IMF as follows:
- China – $2.2 trillion
- United States – $660 billion
- Russia – $520 billion
- The European Union – $279 billion
- India – $247 billion
The IMF analysis predicts that based on current policies, fossil fuel subsidies will rise from the current 6.8% of GDP to 7.4% of GDP in 2025. “Explicit subsidies peaked in 2018 at $760 billion, then fell to $450 billion in 2020,” says the IMF analysis, “But are projected to rise and then remain at about $600 billion from 2021 to 2025.”
The solution is to wean ourselves off fossil fuels by rapidly switching to renewables and other sources of energy. Dr. James Hansen has also called for a rising price on the cost of fossil fuels, as well as fee and dividend. This could speed up the transition.
The IMF calls for more efficient fuel pricing, stating in their analysis that, “Efficient fuel pricing by 2025 would reduce global carbon dioxide (CO2) emissions 36 percent below baseline levels, equivalent to a 32 percent cut below 2018 levels. This is in line with keeping global warming to ‘well below’ 2 degrees and towards 1.5 degrees.”
Efficient pricing could also generate additional revenues, which the IMF estimates could be worth 3.8% of global GDP. It could also help prevent 900,000 premature annual deaths which are associated with air pollution. The analysis says there is “near universal support among economists for a major policy action” on fossil fuel prices. However, they also acknowledge the challenge presented by those who don’t wish fossil fuel subsidies to end, including “powerful interests”.
One thing is evidently clear, the world will struggle to meet the 1.5C target as long as fossil fuels are subsidised by the equivalent of $11 million a minute. We need courageous leadership who are committed to climate action to address this fundamental flaw which is hampering meaningful climate action. Empty promises and blah blah blah as Greta Thunberg said, are not enough. Leaders must address the money problem once and for all, and transition this finance into cleaner and greener solutions.
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