If the world stopped subsidizing fossil fuels and instead added a carbon tax to price them properly, carbon emissions would drop 13%, the quickest and simplest way of addressing climate change.
That’s the conclusion of a report from the International Monetary Fund (IMF), Energy Subsidy Reform: Lessons and Implications, which echoes similar calls to end fossil fuel subsidies from the International Energy Agency, and others over the past few years.
IMF finds that 2.5% of global GDP – 9% of all annual country budgets – are consumed by fossil fuel subsidies and the resulting impacts of carbon emissions, costing a staggering total of $1.9 trillion, even higher than Worldwatch estimates in its analysis.
In developing countries, efforts to keep fossil fuel costs low are leading to budget deficits and preventing governments from investing in infrastructure. Mostly they benefit higher income groups which consume the most energy.
"Maintenance of these subsidies is a global scandal, a crime against the environment and an active instrument against clean energy and technological innovation. We strongly support transforming fossil fuel subsidies into an effective scheme for financing energy efficiency and renewables and making sure that the poor in developing countries benefit appropriately and receive clean, affordable and reliable energy," says Samantha Smith, head of World Wildlife Fund’s (WWF) Global Climate & Energy Initiative.
Close to half of these subsidies are awarded in OECD nations. The US, with about $500 billion annually, accounts for more than one quarter of all global fossil fuel subsidies, followed by China ($300 billion) and Russia ($115 billion).
If industrialized countries abolished these subsidies, and re-directed the money to renewables and energy efficiency investments, those investments would more than triple, exactly what the world needs to run on 100% renewables, says Stephan Singer, Global Energy Policy Director for WWF.
"While aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources. Most subsidy benefits are captured by higher-income households, reinforcing inequality," says IMF.
A report from WWF shows how the world can be powered solely on renewable energy:
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