Subsidies are financial incentives from the government. According to the United Nations Development Programme (UNDP), fossil fuels receive about 425 billion dollars per year in global subsidies [1,2].
What is the source of the several trillion-dollar subsidies claim? IMF Reports
According to a series of reports from the International Monetary Fund (IMF), the costs associated with external impacts from fossil fuels should also be included as subsidies [3,4]. Consequently, health and other costs related to air pollution and climate impacts are also included as subsidies in the reports. The IMF reports estimate the cost from the external impacts to be several trillion dollars per year.
For example, the recent 2021 IMF report claimed that the global subsidies for fossil fuels were 5.9 trillion dollars in 2020 . The 2021 report is considered as the reference IMF report for this article. The claim in the report has significant credibility problems as discussed below .
Historically, the costs from external impacts such as pollution have been addressed via control policies/technologies. The cost-efficiency for such control technologies is very high. For example, U.S. EPA estimates that the cost of air pollution control technology is 30 times lower than the costs arising from air pollution . Thus, a 35-billion-dollar investment in air pollution control technology can eliminate a trillion-dollar cost. In other words, the external cost figures in the report are highly exaggerated.
The report includes road congestion, road accidents and road damage as an external impact from fossil fuels [7,8]. That is like saying the agriculture industry is responsible for the growing obesity in the global population.
To make matters worse from a credibility viewpoint, road congestion, traffic accidents and road damage represent the costliest impact from gasoline in the IMF report. So, based on the report, the largest component of the gasoline subsidy is related to its contribution to road congestion, traffic accidents and road damage.
Clearly, the costs discussed in the IMF reports are exaggerated and misleading. Most media reports do not discuss these critical facts. They only advertise that fossil fuels receive several trillion dollars of subsidies . This misinformation has been soaked up by the general population and is causing confusion about the societal costs related to the low-carbon energy transition.
References & Notes
8/20/2022 01:35:18 am
Great explanation for a commonly held misconception.
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