Global energy subsidies to reach $5.3 trillion by 2015, finds IMF

Global energy subsidies are significantly higher than previous estimates suggested, according to a new report from the International Monetary Fund (IMF).

In damning new analysis of global energy pricing, the IMF puts global post tax energy subsidies at $4.9 trillion (6.5 per cent of global GDP) for 2013, projecting them to reach $5.3 trillion by 2015.

The report, How Large Are Global Energy Subsidies, the IMF warns that subsidies lead to higher public debt and higher taxes to the detriment of more productive areas of public spending such as health, education and infrastructure. They also stunt change towards renewable sources and leave states exposed to price collapses.

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It says: “The fiscal, environmental, and welfare impacts of energy subsidy reform are potentially enormous.”

Eliminating post-tax energy subsidies would lead to a 20 per cent reduction in global CO2 emissions on 2013 figures, which the report says “would represent a major step towards the de-carbonization ultimately needed to stabilize the global climate system”.

Meanwhile the report suggests that eliminating post-tax energy subsidies would reduce premature global air pollution deaths by 55 per cent.

The report found that, even taking into account any higher energy costs faced by consumers, eliminating post-tax subsidies would raise global economic welfare by $1.8 trillion.

It found most of the benefits from the current system of energy subsidies are captured by the richest households.

The report says: “Most energy subsidies arise from the failure to adequately charge for the cost of domestic environmental damage – only about one-quarter of the total is from climate change – so unilateral reform of energy subsidies is mostly in countries’ own interests, although global coordination could strengthen such efforts.”

It continues: “Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 per cent of global GDP), cut global CO2 emissions by more than 20 per cent, and cut premature air pollution deaths by more than half.”