The International Monetary Fund (IMF) disclosed that the prominent world economic leaders are at the forefront when it comes to the aggregate global subsidies for fossil fuels.
The IMF’s latest report titled “IMF Fossil Fuel Subsidies Data: 2023 Update,” unveiled yesterday, brings to the fore the alarming fact that the combined fossil fuel subsidies have reached a staggering $7 trillion mark on a global scale in the year 2022. This is equivalent to 7.1 percent of the entire global Gross Domestic Product (GDP).
The report disclosed that explicit subsidies, which involve the practice of charging below the actual supply costs, contribute to 18 percent of the overall subsidies, while implicit subsidies, encompassing the undercharging for environmental expenses and the waiver of consumption taxes, constitute a significant majority of 82 percent.
According to the report, “Explicit subsidies have more than doubled since the previous IMF assessment, from $0.5 trillion in 2020 to $1.3 trillion in 2022, with sharply higher international fossil fuel prices.
‘‘However, much of the increase is due to temporary price support measures, and hence explicit subsidies are expected to decline if international prices continue receding from their peak levels.
‘‘Implicit subsidies are projected to rise in the baseline as the share of fuel consumption in emerging markets (where local environmental costs are generally larger) continues to climb.”
The report noted that the differences between efficient prices and retail prices for fossil fuels are large and pervasive across fuels, but especially for coal.
“Globally, 80 percent of coal consumption was priced at below half of its efficient level in 2022. ‘‘Underpricing for local air pollution and global warming account for nearly 60 percent of global fossil fuel subsidies and underpricing for supply costs and transportation externalities (such as congestion) explain another 35 percent (the remainder is accounted for by forgone consumption tax revenue).
“By fuel product, undercharging for oil products accounts for nearly half the subsidy, coal another 30 percent, and natural gas nearly 20 percent (underpricing for electricity accounts for the remainder).
‘‘By region, East Asia and the Pacific accounts for nearly half of the global subsidy.
‘‘By country, in absolute terms China remains the biggest subsidizer of fuels, followed by the US, Russia, EU, and India.
‘‘Fully reforming fossil fuel prices by removing explicit fuel subsidies and imposing corrective taxes such as a carbon tax would reduce global carbon dioxide (CO2) emissions by 43 percent below ‘business as usual’ levels in 2030 (34 percent below 2019 levels).
”Indeed, for developing countries as a whole, revenue gains from full price reform exceed the estimated extra spending needed to achieve the Sustainable Development Goals. Fuel price reform would avert about 1.6 million premature deaths per year from local air pollution by 2030. Reforming fossil fuel subsidies is in countries’ own interest, even when excluding climate benefits” the report stated.