The fossil fuel industry receives subsidies of $ 11 million per minute, according to an analysis by the International Monetary Fund.
The IMF found that the production and combustion of coal, oil and gas were subsidized to the tune of $ 5.9 billion in 2020, with no country pricing all its fuels enough to reflect their full cost. supply and their environmental costs. Experts said the subsidies “added fuel to the fire” of the climate crisis, at a time when rapid reductions in carbon emissions were urgently needed.
Explicit subsidies that reduced fuel prices accounted for 8% of the total and tax breaks another 6%. The main factors have failed to make polluters pay for deaths and ill health caused by air pollution (42%) and for heat waves and other impacts of global warming (29%).
Setting fossil fuel prices that reflect their true cost would reduce global CO emissions2 emissions of more than a third, according to IMF analysts. This would be a big step towards achieving the internationally agreed 1.5C target. Keeping this goal within reach is a key goal of the UN Cop26 climate summit in November.
Agreeing on rules for carbon markets that allow for appropriate pricing of pollution is another goal of Cop26. “Fossil fuel price reform could not be more timely,” IMF researchers said. Ending fossil fuel subsidies would also prevent nearly a million deaths a year from polluted air and earn governments billions of dollars, they said.
“There would be huge benefits to reform, so there is a huge stake,” said Ian Parry, lead author of the IMF report. “Some countries are reluctant to raise energy prices because they think it will hurt the poor. But keeping fossil fuel prices up is a very inefficient way to help the poor, as most of the benefits go to the richer households. It would be better to target resources to directly help the poor and vulnerable. “
With 50 countries committed to net zero emissions by mid-century and over 60 carbon pricing systems around the world, there are encouraging signs, Parry said: “But we’re only scratching the surface really. , and there is a very long way to go. go.”
The G20 agreed in 2009 to phase out “inefficient” fossil fuel subsidies and in 2016 the G7 set the deadline for 2025, but little progress has been made. In July, a report showed that G20 countries had subsidized fossil fuels to the tune of trillions of dollars since 2015, when the Paris climate agreement was signed.
“To stabilize global temperatures, we urgently need to move away from fossil fuels instead of adding fuel to the fire,” said Mike Coffin, senior analyst at think tank Carbon Tracker. “It is essential that governments stop supporting a declining industry and instead seek to accelerate the low-carbon energy transition and our future.
“As the host of Cop26, the UK government could play an important global leadership role in ending all fossil fuel subsidies, as well as ending the new offshore licensing rounds of the North, “he said. The International Energy Agency (IEA) said in May that development of new oil and gas fields must stop this year to meet climate targets.
The full IMF report found that prices were at least 50% lower than their actual costs for 99% of coal, 52% of diesel and 47% of natural gas in 2020. Five countries were responsible for two-thirds of the subsidies: China, the United States, Russia, India and Japan. Without action, subsidies will reach $ 6.4 billion in 2025, the IMF said.
Appropriate pricing of fossil fuels would reduce emissions, for example by encouraging power producers to switch from coal to renewables and making electric cars an even cheaper option for motorists. International cooperation is important, Parry said, to allay fears that countries will lose their competitiveness if their fossil fuel prices are higher.
“The IMF report is sobering read, highlighting one of the major flaws in the global economy,” said Maria Pastukhova, of think tank e3g. “The IEA’s net zero roadmap predicts that $ 5 billion will be needed by 2030 to put the world on the path to a climate-safe world. It is infuriating to realize that the much needed change could begin now, if not for the entanglement of governments with the fossil fuel industry in so many major economies.
“Fossil fuel subsidies have been a major stumbling block in the G20 process for years,” she said. “Now all eyes are on the G20 leaders’ summit at the end of October.”
Ipek Gençsü, from the Overseas Development Institute, said: “[Subsidy reform] requires support for vulnerable consumers who will be affected by rising costs, as well as for workers in industries that simply have to shut down. It also requires information campaigns, showing how savings will be redistributed to society in the form of health care, education and other social services. A lot of people oppose subsidy reform because they see it only as governments taking something away and not giving back. “
The G20 countries emit nearly 80% of the world’s greenhouse gases. More than 600 global companies in the We Mean Business coalition, including Unilever, Ikea, Aviva, Siemens and Volvo Cars, recently urged G20 leaders to end fossil fuel subsidies by 2025.