A new report from the International Monetary Fund (IMF) estimates that energy subsidies total $1.9 trillion worldwide – the equivalent of 2.5 percent of global GDP.
Earlier this month, Earth Policy Institute (EPI) pegged the number at USD$620 billion; however the IMF’s figures are based on a post-tax basis that also factors in a range of negative externalities from energy consumption.
The IMF’s paper shows for some countries the burden of energy subsidies is becoming so great that it threatens the stability of those economies.
Instead of supporting the poor, IMF First Deputy Managing Director David Lipton says energy subsidies reinforce inequality as they mainly benefit upper-income groups given they tend to be the largest consumers of energy.
“On average, the richest 20 percent of households in low- and middle-income countries capture 43 percent of fuel subsidies,” said Mr. Lipton.
Eliminating energy tax subsidies would deliver massive emissions reductions, slashing carbon dioxide emissions by 4.5 billion tons, a 13 percent reduction. Doing so would also strengthen incentives for research and development in energy-efficiency and alternative technologies.
Mr. Lipton says in some countries, low energy prices also mean little investment in essential infrastructure occurs and other critical areas.
“More is spent on subsidies than on public health and education, undermining the development of human capital.”
While fossil fuel subsidies have substantial adverse effects on public finances, economic growth, equity and the environment, Mr. Lipton cautions a weaning-off of subsidisation needs to be done carefully to avoid impacting those who require support the most; stating :it is better to do it the right way, than to do it right away.
The International Energy Agency has also repeatedly called for fossil fuel subsidies to be scrapped in an effort to reduce carbon emissions.
The IMF’s paper provides estimate of energy subsidies in 176 countries and insights as to how to go about energy subsidy reform based on 22 country case studies. The paper can be viewed in full here (PDF).
