Fossil fuel subsidies

 

5,3$ trillion in 2015, $10 million dollars a minute every day, this is the cost of fossil fuels subsidies according to a new estimate by the International Monetary Fund. In 2014 the total amount of subsidies was 1.9 trillion, so how can such a rise be explained ?

Subventions play a major role in the International Trade. That is why the World Trade Organization is so interested by them. But what is a subsidy ? It can be defined as an economic benefit (such as a tax allowance or duty rebate) or financial aid provided by a government to support a desirable activity, keep prices low, maintain the income of producers of critical strategic products, … The basic characteristic of all subsidies is to reduce the market price below its cost of production.

For fossil fuel, most of the subsidies are directed towards transport. 5 measures account for 91% of total subsidies in France. Tax exemptions for the flying industry for TICPE – Domestic Consumption Tax on Petroleum Products -, reduced taxes on oil, partial reimbursements of taxes – TICPE – for the road transport, exoneration for the TICGN – Domestic Tax on Natural Gas Consumption- and partial tax exemptions for biofuels. The total cost of these subsidies adds up to almost 5 billion € in France.

If the total amount of these anti-environmental subsides has risen in such a spectacular way, it’s mainly because of the way they are calculated. A subsidy is the difference between the market cost of a product and its real cost. This “real” cost has to take into account pollution, environmental damages, health, and everything called “externalities”. Because the WHO estimated that these costs were higher than previously thought, the cost of fossil fuels rose up. As said by Nicholas Stern, “this very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damage economies, particularly in poorer countries”.

Today, coal is the main recipient of these subsidies but it’s also unfortunately the most polluting energy (40% of the global CO2 amount). Oil and gas share the rest of these subsidies. China is mainly responsible for these subsidies with $2300 billion in 2015, far ahead USA (700 billions) and Russia (335 billions).

On renewable energies, Coady said : “If we get the pricing of fossil fuels right, the argument for subsidies for renewable energy will disappear. Renewable energy would all of a sudden become a much more attractive option.”

The total amount of fossil fuels subsides exceed the global health’s budget. According to the IMF, suppressing them would benefit the global economy by encouraging the use of renewable energies. CO2 emissions would be reduced by 20% and deaths caused by air pollution would be reduced by 50%.

 

To go further :

– COADY David, PARRY Ian, SEARS Louis, SHANG Baoping, How Large Are Global Energy Subsidies ?, Rapport de du Fonds Monétaire International, 2015

– PLUMER Brad, “The IMF says we spend $5.3 trillion a year on fossil fuel subsidies. How is that possible ?”, Vox, May 20, 2015

 – CARRINGTON Damian, “Fossil fuels subsidized by $10m a year says IMF”, The Guardian, 18 May 2015