Coal, oil, and natural gas received $5.9 trillion in subsidies in 2020 — or roughly $11 million every minute — according to a new analysis from the International Monetary Fund.
Explicit subsidies accounted for only 8 percent of the total. The remaining 92 percent were implicit subsidies, which took the form of tax breaks or, to a much larger degree, health and environmental damages that were not priced into the cost of fossil fuels, according to the analysis.
“Underpricing leads to overconsumption of fossil fuels, which accelerates global warming and exacerbates domestic environmental problems including losses to human life from local air pollution and excessive and road congestion and accidents,” authors wrote. “This has long been recognized, but globally countries are still a long way from getting energy prices right.”
The report found that 47 percent of natural gas and 99 percent of coal is priced at less than half its true cost, and that just five countries — China, the United States, Russia, India, and Japan — account for two-thirds of subsidies globally. All five countries belong to the G20, which in 2009 agreed to phase out “inefficient” fossil fuel subsidies “over the medium term.”
Setting the price of coal, oil, gas to reflect their true cost — say, with a carbon tax — would cut carbon dioxide emissions by around a third, helping to put the world on a path to keeping warming below 1.5 degrees C. Such policies would also raise revenues equal to 3.8 percent of global GDP and prevent close to 1 million deaths from local air pollution yearly.
“There would be enormous benefits from reform, so there’s an enormous amount at stake,” Ian Parry, an environmental policy expert and lead author of the report, told the Guardian. “Some countries are reluctant to raise energy prices because they think it will harm the poor. But holding down fossil fuel prices is a highly inefficient way to help the poor, because most of the benefits accrue to wealthier households. It would be better to target resources towards helping poor and vulnerable people directly.”