Reflections from Below the Fossil Subsidy Iceberg

As close observers have long suspected, governments historically underestimate the cost subsidies for fossil fuel exploration, development, and production.  By far.  The International Monetary Fund has just calculated far in a study distributed by its Fiscal Affairs department: How Large Are Global Energy Subsidies? (IMF working paper 15/105).

Here’s IMF’s basic reasoning.  If you incorporate what governments have to pay to clean up after companies burn oil, coal, and natural gas for power, you see that this factor has not been counted in the economic equation of using fossil fuels.  Humans have to counter emissions of carbon dioxide and other pollutants in order to combat their harmful effects (air pollution, the greenhouse effect, climate change, and related disaster response, normally considered “externalities”).  Government is usually pegged as the industry’s housekeeper.  Until recently, the costs of remediation have been invisible. It turns out that they are unbelievably high.

The IMF—sometimes a fairly conservative voice, considering its purpose—calls them “shocking.”  Figuring in all necessary government actions to counter greenhouse gas emissions, global subsidies amount to not only the numbers usually cited (of around $500 billion a year), but to $5.3 trillion a year.  The Guardian puts this government expense, which the public pays for, at $10 million per minute.  In 2015, this total exceeds the amount all world governments spend on health.  It shows that we price fuel remarkably low, considering its real cost, and that true subsidies are a far cry above the usual calculation.

“The IMF provides five trillion reasons for acting on fossil fuel subsidies,” UN climate chief Christiana Figueres states.  Says Nick Stern, well-known climate economist at the London School of Economics:

“This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are.  There is no justification for these enormous subsidies for fossil fuels, which distort markets and damage economies, particularly in poorer countries….  A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.”

Read more at Reflections from Below the Fossil Subsidy Iceberg