May 29, 2015 4:00pm by David Farrar

Fossil fuel subsidies

The Guardian reports:

Fossil fuel companies are benefiting from global subsidies of $5.3tn (£3.4tn) a year, equivalent to $10m a minute every day, according to a startling new estimate by the International Monetary Fund.

The IMF calls the revelation “shocking” and says the figure is an “extremely robust” estimate of the true cost of fossil fuels. The $5.3tn subsidy estimated for 2015 is greater than the total health spending of all the world’s governments.

The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas. These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change.

I’m against any form of energy being subsidised. Fossil fuels should not be subsidisied, and neither should (for example) solar power.

However there is a difference between a subsidy and whether a tax should be placed on an activity to cover the public costs imposed by that activity. There is a case for such externality taxes (such as have on tobacco and alcohol) but again it is not the same as a direct subsidy.

The costs resulting from the climate change driven by fossil fuel emissions account for subsidies of $1.27tn a year, about a quarter, of the IMF’s total. The IMF calculated this cost using an official US government estimate of $42 a tonne of CO2 (in 2015 dollars), a price “very likely to underestimate” the true cost, according to the UN’s Intergovernmental Panel on Climate Change.

The direct subsidising of fuel for consumers, by government discounts on diesel and other fuels, account for just 6% of the IMF’s total. Other local factors, such as reduced sales taxes on fossil fuels and the cost of traffic congestion and accidents, make up the rest. The IMF says traffic costs are included because increased fuel prices would be the most direct way to reduce them.

So the actual subsidies are 6% of the total, and the other 94% is not covering estimated external costs.

And which countries have the biggest subsidies?