Global Fossil Fuel Subsidies Stand at $6 Trillion: IMF

New research produced by the International Monetary Fund (IMF) estimates global fossil fuel subsidies at about US$6 trillion (i.e. 6.8 percent of global GDP), with more than 70 percent reflecting undercharging for the environmental costs pertaining to the fuels, revealed IMF Managing Director Kristalina Georgieva at a recent UN energy summit.

The IMF had previously estimated fossil fuel subsidies at about US$5.2 trillion in 2017.

“The science is clear. Without dramatic reductions in the use of fossil fuels, we will see untold destruction to our environment and continuing damage to people’s health and livelihoods. And the 1.5°C goal of the Paris Agreement will fall quickly out of reach,” she explained in her address.

According to Georgieva, getting fossil fuel prices right is key for making these reductions. She believes that the right prices must fully reflect both supply costs and environmental costs – especially carbon emissions and local air pollution.

Underpricing fossil fuel, which undermines environmental objectives, is a badly targeted policy that predominantly benefits higher-income households and deprives governments of precious fiscal resources.

Raising fuel prices is a challenge and also an essential requirement. “The good news is that global carbon emissions would fall by one-third – in line with keeping global warming to 1.5 degrees Celsius – if fossil fuel prices increase to fully reflect environmental and supply costs by 2025,” Georgieva added.

Her comments came as governments and the private sector pledged to spend more than US$400 billion at the summit that called for an acceleration of efforts to avert catastrophic climate change.

The spending commitments, many of which have been announced previously, include projects to expand electricity access in developing countries, boost clean cooking technologies and improve energy efficiency as part of a drive to decarbonise the energy system.

The IMF staff has proposed an international carbon price floor among large emitters, set according to development levels.