An analysis by the International Monetary Fund (IMF) the fossil fuel industry is benefiting from subsidies of $11m per minute.
The IMF discovered that despite the urgent need for rapid reductions in carbon emissions, subsidies worth $5.9tn were provided to the production and burning of coal, oil, and gas in 2020. Experts expressed concerns that the subsidies are “adding fuel to the fire” of the climate crisis.
Further breakdown reflects those explicit subsidies that slash fuel prices accounted for 8% while tax breaks account for another 6% of the total. The most important factors were failure to make polluters pay for the poor health and deaths caused by air pollution (42%) along with the heatwaves and other effects of global heating (29%).
IMF analyst says that setting fossil fuel prices that are reflective of their actual cost would slash global CO2 emissions by over a third. This would be a big step to help in the achievement of the internationally decided 1.5C target. Keeping this target within reach is one of the critical goals of the UN Cop26 climate summit in November.
Another goal of Cop26 is to come up with a mechanism for carbon markets that allows for proper pricing of pollution. IMF researchers said, “Fossil fuel price reform could not be timelier,” They added that putting an end to fossil fuel subsidies would also help avert nearly a million deaths every year caused by dirty air while raising trillions of dollars for governments.
Lead author of the IMF report Ian Parry said, “There would be enormous benefits from reform, so there’s an enormous amount at stake. 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.”
Some of the encouraging signs are that 50 countries have committed to net zero emissions by mid-century and over 60 carbon pricing schemes are being implemented around the world. Parry added, “But we’re still just scratching the surface really, and there’s an awful long way to go.”
In 2019 the G20 agreed to eliminate “inefficient” fossil fuel subsidies while in 2016, the G7 set a deadline of 2025 but progress has been nil. A report showed in July that the G20 countries had subsidized fossil fuels by trillions of dollars since 2015, the year in which the Paris climate deal was reached.
Senior analyst at the thinktank Carbon Tracker Mike Coffin said, “To stabilize global temperatures we must urgently move away from fossil fuels instead of adding fuel to the fire. It’s critical that governments stop propping up an industry that is in decline, and look to accelerate the low-carbon energy transition, and our future, instead. 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 the new North Sea licensing rounds.”
The International Energy Agency (IEA) noted in May that if we are to meet climate goals, the development of new oil and gas fields must stop this year.
The IMF report stated that prices were at least 50% below their true costs for 99% of coal, 52% of diesel and 47% of natural gas in 2020. The five countries which are paying two-thirds of the subsidies are the US, China, Russia, Japan and India. IMF said that if immediate action is not taken, subsidies will increase to $6.4tn in 2025.
International cooperation is important to dispel fears that countries could lose competitiveness if their fossil fuel prices rise. Proper pricing of fossil fuels would slash emissions and encourage people to switch for example electricity generators from coal to renewable energy and make electric cars an even cheaper choice for motorists.
Maria Pastukhova, at the thinktank e3g said, “The IMF report is a sobering reading, pointing to one of the major defects of the global economy. The IEA’s net-zero roadmap projects that $5tn is necessary by 2030 to put the world on the pathway to a climate-safe world. It is maddening to realize the much-needed change could start happening now, if not for governments’ entanglement with the fossil fuels industry in so many major economies.”
She added, “Fossil fuel subsidies have been a major stumbling block in the G20 process for years. Now all eyes are on the G20 leaders’ summit in late October.”
Ipek Gençsü, at the Overseas Development Institute, said: “[Subsidy reform] requires support for vulnerable consumers who will be impacted by rising costs, as well for workers in industries which simply have to shut down. It also requires information campaigns, showing how the savings will be redistributed to society in the form of healthcare, education, and other social services. Many people oppose subsidy reform because they see it solely as governments taking something away, and not giving back.”
The G20 countries are responsible for the emissions of around 80% of global greenhouse gases. Over 600 global companies in the We Mean Business coalition, including Unilever, Ikea, Aviva, Siemens, and Volvo Cars, recently urged G20 leaders to completely eliminate fossil fuel subsidies by 2025.