Global energy subsidies fuel climate change, says IMF study

Governments around the world will subsidise the cost of oil, gas and coal to the tune of $5.3tn this year, fuelling pollution and climate change, as they misallocate the equivalent of what is spent globally on public health, according to a new study. The estimate published on Monday by economists at the International Monetary Fund represents their calculation of the gap between what businesses and consumers pay for energy and the “true cost” if environmental and health effects are factored in.

It amounts to a clarion call for higher taxes on energy and therefore higher energy prices for consumers at a time when much of the global economy remains in a fragile recovery.

The $5.3tn “true cost” of government energy subsidies that the IMF team arrived at is equivalent to 6.5 per cent of global economic output. It is also more than twice the $1.9tn cost calculated by IMF researchers just two years ago. At the time the fund itself called that estimate “staggering”.

Almost the entire difference between the old and the new estimate is based on a radical re-accounting of what the study says are the real environmental costs of energy subsidies. It also amounts to a significant shake-up of the argument the IMF and others have made against the energy subsidies that have eaten up huge portions of government budgets in emerging economies such as India and Indonesia.

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