The International Monetary Fund (IMF) has urged countries to reduce fossil fuel subsidies, pointing out that energy subsidies will strain government finances and ultimately benefit the wealthy more.
In a broad report, the IMF stated that oil, gasoline, and electricity subsidies, intended to help consumers, have backfired, leaving governments burdened with heavy costs.
Furthermore, the report states that energy subsidies encourage energy waste, fail to incentivize public investment in energy-saving industries, and exacerbate pollution and global warming.
According to the IMF, direct energy subsidies worldwide reached $480 billion in 2011. If after-tax subsidies are included, global government subsidies totaled $1.9 trillion. Oil exporters received the most subsidies, which will lead to faster depletion of natural resources. However, over the past three years, global oil and gas prices have risen, particularly impacting energy importers. The report states that many countries have not raised domestic energy prices to cope with rising prices, thus increasing their fiscal burden.
David Lipton, First Deputy Managing Director of the IMF, said that countries providing energy subsidies to their citizens are now facing fiscal paralysis and energy shortages. There are 20 countries worldwide where energy subsidies account for more than 5% of GDP. These subsidies squeeze out much-needed spending on healthcare, education, and infrastructure, hindering higher growth.
The report also stated that, including after-tax subsidies, the total amount of subsidies provided by the three major energy subsidy countries—the United States, mainland China, and Russia—is nearly $900 billion.
Lipton points out that cutting subsidies could significantly change the fight against global warming. Stopping pre-tax subsidies that fuel energy waste could achieve global emissions reduction targets of approximately 15% to 30%. The effect would be even more significant by addressing post-tax subsidies, which would reduce CO2 emissions by 4.5 billion metric tons, equivalent to a 13% reduction.
Source: Environmental Information Centre (March 28, 2013)
