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Fossil fuels subsidies cost world $5.3 trillion a year – $10m a minute

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How large are global energy subsidies? The answer: quite a lot larger than we thought, according to new estimates from the International Monetary Fund, which puts the cost of subsidising fossil fuels at an enormous $US5.3 trillion a year, or around $US10 million a minute every day.

The eye-watering figure, based on calculations the IMF describes as “extremely robust,” is more than double the projected 2014 estimate the IMF released around this time last year, and amounts to more than the total health spending of all the world’s governments.

It is somewhat of an irony, then, that the IMF’s new figure of $5.3 trillion is largely attributed to polluters not paying the costs – social welfare, health, environmental and broader economic – imposed on governments for the burning of coal, oil and gas.

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“Post-tax energy subsidies are dramatically higher than previously estimated — $4.9 trillion (6.5 per cent of global GDP) in 2013, and projected to reach $5.3 trillion (6.5 per cent of global GDP) in 2015,” the report says.

But according to eminent UK economist Nicholas Stern, even this “vast” figure amounts to a significant underestimate.

“A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests,” he said in a statement on Monday.

Unsurprisingly, coal is named as the biggest recipient of the subsidisation, “given its high environmental damage and because (unlike for road fuels) no country imposes meaningful excises on its consumption,” the report says.

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Petroleum is the next most heavily subsidised product, the report notes, with the projected subsidy remaining at 1.8 per cent of global GDP in 2015 despite declining petroleum prices.

This is followed by natural gas, and then by electricity, for which the projected post-tax subsidy comes to 0.2 per cent of global GDP in 2015, with environmental impacts attributed to energy inputs rather than power generation itself.

The report also finds that post-tax subsidies are large and pervasive in both advanced and developing economies, but are “especially large (about 13-18 per cent) relative to GDP in emerging and developing countries.

“There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries,” said Lord Stern.

In Australia, a report published in December estimated that the nation’s fossil fuel sector was set to receive $47 billion in federal government subsidies over the next four years.

In a statement to the Senate inquiry into wind turbines on Tuesday, Director of research at The Australia Institute, Rod Campbell, stressed that every dollar from treasury to the fossil fuel industry was one not being spent on schools, hospitals or public infrastructure.

“We know that over a six-year period, state governments in Australia spent $17.6 billion supporting the mineral and fossil fuel industries. Enough to fully fund the Gonski education reforms,” Campbell said.

“We know that the diesel fuel rebate (fuel tax credit) costs $6.2 billion a year. (2015 Federal Budget Paper 1, Statement 5)

“We know that Galilee coal projects, including Abbot Point terminal, cost Queensland taxpayers $2 billion.

“The old, false story of ‘cheap’ fossil fuels is bunk. In addition to the health and climate costs that are never accounted for, they’re very directly costing taxpayers billions,” Campbell said.

The good news – there is some – is that “the fiscal, environmental, and welfare impacts of energy subsidy reform are potentially enormous,” says the report.

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The IMF estimates that eliminating subsidies for fossil fuels would cut global carbon emissions by 20 per cent; slash the number of premature deaths from outdoor air pollution by 55 per cent (about 1.6 million lives a year) and deliver projected economic gains of around $2.9 trillion in 2015 – an amount that could be an economic “game-changer” for many countries, the report says.Screen Shot 2015-05-19 at 10.42.21 am

“What really matters for policy – not only for its own sake, but also for convincing policymakers and stakeholders of the need for reform – are the benefits that reform will produce in terms of fiscal balances, the environment, human health, and the economy,” the report says.

Another consequence, as the Guardian has noted here, would be that the need for subsidies for renewable energy – a relatively tiny $120 billion a year – would also disappear, if fossil fuel prices reflected the true cost of their impacts.

“If we get the pricing of fossil fuels right, the argument for subsidies for renewable energy will disappear,” said David Coady, the IMF official in charge of the report.

“Renewable energy would all of a sudden become a much more attractive option.”  

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  • Ken Dyer

    Eventually Governments will wake up and realise they are being conned by the fossil fuel burners who are busily stoking their generators to produce power that nobody wants because renewables are providing more and more. The fossil fuel burners are literally cooking the books, and the poor old taxpayer is getting it in the neck as usual.

    • Pedro

      I suspect Governments do realize and those tax payer subsidies come back to certain politicians through the back door in the form of political donations. We all know who feathers the LNP nest.

      • Jacob

        One can only hope that the clean energy industry does not get subsidies in the future.

        • Pedro

          Ideally no industry should be subsidized. If an industry can not be profitable without tax payer corporate welfare I would argue it generally should not exist. For industries that are subsidized there needs to be some very compelling reasons to do so.

          • Coley

            I am all for subsidising RE in the hope my grandchildren will have a future, as opposed to subsidising FF corporates in order that their CEOs and investors can enjoy the fat cat lifestyle in the here and now!

          • cul heath

            Profit is not the sole motive for human industry and activity…using it as the sole criterion for anything is absurd.

            For industries that are subsidized there needs to be some very compelling reasons to do so.

            How about the “common good” as a reason?

          • Pedro

            You are right on your first point if you mean industries such as health, education, and other such organisations. The context in way I used ‘industry’ was more to do with industry set up for the purpose of making a profit generally those corporations that are listed on the stock exchange.

            ‘Common good’ is a worthy reason to subsidize certain industries. If only the politicians could agree on what is for the common good and the metrics around that concept.

  • I read the Aussie report and the things it says are subsidies are not subsidies at all. A reductions in high tax rates on fuel is not a subsidy, especially when renewables have no such tax. There are better ways to advance renewables than pedalling clap-trap. Electric cars are just fundamentally better in every respect – lets start with Telsa not rubbish arguments

    • hebintn

      A rose by any other name…. call it what you want, subsidy, tax reduction, gift, graft, theft, or what ever. Expending our tax dollars to further the rape of the Earth is not right and must be ended. Those dollars should be spent on helping people not corporations. They should be spent on R&D on clean energy.

    • Coley

      I’m not that knowledgable about Australian fuel subsidies, but here in the UK they were introduced to support agriculture, not opencast mining or other harmful activities, but the polluters have taken advantage of a beneficial loophole designed to increase agricultural efficiency and now we have the ‘red diesel’ disease creeping into most forms of distribution and mining activities.

      • john

        Coley it is basically the same in Au and every other country.

  • john

    Tax has been put on the use of FF after it has been delivered.
    Tax has been put on minerals after it has been delivered.
    Tax has been put on primary industry after it has been delivered.
    What we are now talking about now is taxing the making of these different products.
    Narrowing it down to FF only is the item in discussion.
    So yes the FF Industry does enjoy tax benefits world wide.
    If this is removed the end result is going to be that in the developed world it may be applied however in 2nd and 3rd world areas good luck with that.
    Now as to the North Sea and yet to come the South Sea yes that is going to happen in the not so shortly future just who has jurisdiction over that area I ask?
    I can see a particularly interesting scenario developing in the south sea I mean around Antarctica.