A rate of $13 million a minute — that’s how quickly money in government subsidies went to oil, gas, and coal industries worldwide in 2022, according to a recent analysis by the International Monetary Fund.
How do dirty energy subsidies work?
The subsidies generally aim to keep fuel prices low for consumers.
Governments achieve this in different ways, including directly paying down some of the price and also reducing costs for fuel producers through other means, such as tax breaks.
The IMF reported in August on record total subsidies of $7 trillion for oil, gas, and coal in 2022.
Two reasons for record subsidies in 2022 were that governments sought to ease the blow of spiking energy prices caused by Russia’s invasion of Ukraine and also that they aimed to keep costs low for ongoing pandemic recovery.
Even so, the IMF Blog noted, fuel subsidies have increased by $2 trillion over the past two years, while governments have vowed to reduce them. The IMF explains that there are two forms of fuel subsidies: explicit subsidies (undercharging for supply costs) and implicit subsidies. It’s the second type that involves undercharging for environmental costs.
Fossil fuel subsidies rose to a record $7 trillion last year. With world temperatures rising to unprecedented levels, subsidies should be scaled back to help slow climate change. https://t.co/VE965QdR0G pic.twitter.com/uaA5QnSUVc— IMF (@IMFNews) August 27, 2023
Why you should care about dirty energy subsidies
One big problem with subsidies is that they keep fuel artificially cheaper and encourage more fuel use, as The New York Times notes. This comes at costs to human health, the planet, and investment in new technologies such as renewables. There is also an equality issue: People with higher incomes benefit more from low fuel prices because they use more fuel, per the IMF.
On its blog, the IMF acknowledges that removing fuel subsidies is “tricky” but has long-term benefits. The political difficulty of removing subsidies when they keep fuel prices low could be why governments have talked about it without much progress. Yet the IMF points out that “phased-in” reform of subsidies could a) reduce pollution to help limit planet-heating to an internationally accepted 2.7 to 3.6 degrees Fahrenheit, b) free up tax revenues for investment in other areas, and c) avoid 1.6 million deaths due directly to pollution yearly.
“The IMF report shows that, at a time when the world is starting to experience worsening impacts of climate change, governments continue to pour fuel on to the fire by providing record levels of subsidies for fossil fuels,” Ipek Gençsü, a subsidies expert, told the Guardian.
“If we are to have any chance of avoiding irreversible and tragic consequences of climate change, governments simply have to show bolder leadership, by phasing out their support for production and consumption of fossil fuels.”
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