IMF decries fossil fuel subsidies

The International Monetary Fund has urged nations to slash their US$1.9 trillion in annual energy subsidies because they increase inequality, boost and limit investment in renewable energy.
While many nations use energy subsidies to shield consumers from rising prices, benefits tend to be grabbed by higher-income households. The outlays also sap funds available for bigger improvements to the wellbeing of the poor, such as health care and education spending.
“Subsidies cause over-consumption of petroleum products, coal, and natural gas, and reduce incentives for investment in energy efficiency and renewable energy,” the IMF said. “This over-consumption in turn aggravates global warming and worsens local pollution.”
The removal of fossil-fuel subsidies would cut global carbon dioxide emissions by 4.5 billion tons, or about eight times Australia’s annual emissions, according to IMF estimates. Sulfur dioxide pollution would also drop by 13 million tons if the subsidies ended, it said.
The IMF listed the top three energy subsidizers as the United States (US$502 billion), China (US$279 billion) and Russia (US$116 billion).
Petroleum and electricity subsidies accounted for three-quarters of the pre-tax subsidies, with natural gas accounting for most of the rest, and coal subsidies worth about US$6 billion, the IMF said. The survey did not include subsidies received by renewable energy producers.
“Subsidizing clean energy is slightly more benevolent than subsidizing a depletable, polluting resource,” said Paul Burke, a research fellow at the Australian National University’s (ANU) Crawford School of Public Policy.
Australia’s subsidies for petroleum products, natural gas and coal amounted to 1.79% of gross domestic product in 2011. The IMF did not give a figure for electricity subsidies.
The cost of subsidizing fossil fuels also rises if the contribution to climate change from the extra greenhouse gases is included. The IMF used U.S. estimates to price such damage at US$25 per ton of carbon emitted, not far off from Australia’s carbon tax of A$23 (US$23.57) a ton.
“This figure would give you, in the absence of a price on carbon, a US$10.3 billion subsidy to energy in Australia,” said Erwin Jackson, deputy chief executive of the Climate Institute. “With the carbon laws, this is reduced to less than a billion dollars.”
Burke said Australia would probably be a net taxer of energy if fuel taxes and other charges were taken into account. Even so, government policies favored some industries over others.
“When we drive, we pay about 50¢ per liter in tax for petrol but when we fly we’re only paying about 2¢ a liter,” Burke said.
The decision not to link the fuel excise directly to the inflation rate meant Australia was slipping down the ranks of fuel-taxing nations.
“Compared to most other developed countries, we are very low when it comes to petrol tax,” Burke said, with only nations such as the U.S. and Canada charging less.
(March 29, 2013)