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October 6, 2021

IMF: fossil fuel industry the recipient of subsidies of $5.9tn per year

Analysis by the IMF has found that fossil fuels are still receiving subsidies of $5.9tn, equating to $11m per minute.

By Zachary Skidmore

Analysis by the International Monetary Fund (IMF) has found that the production and burning of coal, oil, and gas received subsidies of $5.9tn in 2020, equating to $11m per minute.

Subsidies explicitly aimed at the fossil fuel industry accounted for 8% of the total, with tax breaks accounting for another 6%. Most of the total was made up by the failure of governments and regulatory bodies to make fossil fuel polluters pay for the deaths and poor health caused by air pollution, at 42%, and for heatwaves and other impacts of global heating, at 29%.

The power generation sector is the largest recipient of subsidies, receiving 61% and 33% of coal and natural gas subsidies respectively. Electricity subsidies are evenly split across industrial and residential users.

By region, East Asia and the Pacific accounts for 48 % of total energy subsidies. And by country, China remains the biggest subsidiser in absolute terms, followed by the US, Russia, India, and the EU.

The report claims that efficient fuel pricing by 2025 would reduce global carbon dioxide emissions 36% below baseline levels, which is in line with keeping global warming to 1.5 °C. This is also while raising revenues worth 3.8% of global GDP and preventing 0.9 million local air pollution deaths per year

The true cost

IMF analysts stated that setting fossil fuel prices that reflect their true cost would cut global CO2 emissions by over a third. They further elaborated that ending fossil fuel subsidies would prevent nearly a million deaths a year from dirty air and raise trillions of dollars for governments.

“There would be enormous benefits from reform, so there’s an enormous amount at stake,” said Ian Parry, the lead author of the IMF report. “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.”

Mike Coffin, senior analyst at the thinktank Carbon Tracker, said the onus is on developed countries to set a precedent on fossil fuel subsidies: “As host of COP26, the UK Government could play an important global leadership role by ending all subsidies for fossil fuels, as well as halting new North Sea licensing rounds.”

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