Global fossil fuel subsidies reach $5.2 trillion, and $29 billion in Australia

Air Pollution explosion emissions from Power Stations

New analysis commissioned by the International Monetary Fund has shown that global fossil fuel subsidies continue to grow, despite the growing urgency of the need to decarbonise the global economy.

The working paper prepared by the IMF Fiscal Affairs Department estimated that, in 2017, global fossil fuel subsidies grew to $5.2 trillion, representing 6.5 per cent of combined global GDP.

China leads all countries in the level of subsidies provided to fossil fuels, which the IMF report estimated to total $1.4 trillion in 2015. The United States followed with $649 billion in subsidies, Russia with $551 billion and the EU with $289 billion.

The IMF estimates that annual energy subsidies in Australia total $29 billion, representing 2.3 per cent of Australian GDP. On a per capita basis, Australian fossil fuel subsidies amount to $1,198 per person.

Australia ranked below most countries for mortality rate from pollution related illnesses, with the IMF attributing 2.6 deaths per 1,000 in Australia to local air pollution associated with fossil fuels.

This is less than half the rate observed in China (5.3 deaths per 1,000) and significantly below Russia (10.0 deaths per 1,000) and the Ukraine (16.0 deaths per 1,000), where little by way of regulation exists to protect people from air pollution.

The IMF found that the removal of fossil fuel subsidies would have significant economic benefits, including improved budget bottom-lines for governments. The net benefits of eliminating fossil fuel subsidies would amount to 1.7 per cent of global GDP.

The under-pricing of fossil fuels, particularly coal, was found to be the largest source of effective subsidy. When the wider social and environmental costs of fossil fuels were taken into account, the IMF found that price paid for coal was typically less than half of its true cost.

The report found that if fossil fuels had been priced appropriately, global carbon emissions would be reduced by 28 per cent. Significantly, effective fossil pricing would also lead to a decrease in air pollution deaths by up to 46 per cent. The elimination of fossil fuel subsidies would also increase global government revenues by 3.8 per cent of GDP.

The upward trend in global fossil fuel subsidies echoes similar analysis by the International Energy Agency that came to the same conclusion, particularly in relation to direct government support for fossil fuels.

Source: IMF
Source: IMF

The largest contributor to fossil fuel subsidies is the under-pricing of local air pollution, as the impacts of smog and particulate emissions have significant health impacts and are a contributor to early deaths.

Countries including China and India have struggled over recent years to address the growing impacts of air pollution.

Growth in fossil fuel consumption to fuel economic development has come with growing concerns about smog and poor air quality in major cities. China has taken steps to combat growing air quality concerns, including potential bans on new petrol-fuelled cars.

The impacts of global warming were the second largest source of effective subsidy, representing 24 per cent of total fossil fuel subsidies. A recent report from the Climate Council estimated that up to $571 billion were predicted to be wiped off Australian property values as a result of the impacts of climate change.

The overwhelming majority of global greenhouse gas emissions are not covered by an effective pricing mechanism. Greenhouse gas emissions do however have an effective cost to the wider community through the economic costs of damage due to climate change.

Coal remained the largest beneficiary, with 44 per cent of global subsidies being directed towards the fuel. Oil (41%) and gas (10%) followed.

Source: IMF
Source: IMF

The battle over energy subsidies has been a feature of Australian politics over recent years, with conservative politicians attacking renewable energy subsidies.

The growing evidence from groups like the IMF and the IEA shows that fossil fuel subsidies are a major drag on the global economy, with the true costs of their use being a burden on wider society.

Michael Mazengarb is a Sydney-based reporter with RenewEconomy, writing on climate change, clean energy, electric vehicles and politics. Before joining RenewEconomy, Michael worked in climate and energy policy for more than a decade.

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