Last year the governments of the world reportedly “subsidized” fossil fuels to the tune of $5.3 trillion last year, or $10 million per minute.
This figure reported by The Guardian after culling the data from a working paper published last May by writers working with the International Monetary Fund also equates to $14.5 billion per day, or $600 million per hour, or $168,000 per second.
If this estimate equal to about 6.5 percent of global GDP is correct, electrification advocates might consider they have serious ammo to refute criticism of relatively miniscule subsidies applied by global governments for the budding plug-in car industry.
In question with the IMF-derived paper’s assertions however is the definition of “subsidy” – and whether this report already re-tweeted by Tesla head Elon Musk is an official position held by the IMF – which HybridCars.com has confirmed it isn’t.
A serious academic work in any case, the paper includes in the $5.3 trillion total what economists would also call “externalities” – costs associated with the reliance on fossil fuels including to human health and climate change.
But not to be minimized, these costs to society could be deemed far above presently low prices for a barrel of oil, a gallon of gasoline – and any warm fuzzy feelings some may have for the cost of the petroleum paradigm versus investing further in electrified alternatives.
In question however is what represents the official position of the IMF, which is not actually stated. The Guardian report freely references what the IMF “says,” but the paper it cites offered the following disclaimer.
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
An inquiry to the IMF office in Washington seeking clarification on its position confirmed that the paper does not represent the views of the IMF.
“Your assumptions are correct, this working paper bears a valid disclaimer that it should not be reported as representing the views of the IMF.” wrote Wiktor Krzyżanowski, senior communications officer for the IMF. “You will understand that I’m not in a position to comment on why did Guardian report it differently and whether their reporting was accurate.”
That said, The Guardian report lays out a case citing numerous sources in an article accompanied by a video highlighting its assertion of the dire need to keep fossil fuels in the ground.
The latest evidence by the IMF adds, if you will, fuel to the rhetorical fire which amount to massive costs for society’s present way of life.
While the IMF paper loosely uses the term “subsidy” to include actual monetary subsidies, as well as inadvertent “subsidies” like tax breaks, it lumps other costs that many would consider not to be “subsidies” – unless one expands the boundaries of the definition.
“The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas,” reports The Guardian. “These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change.”
A bit more than half the $5.3 trillion represents funds that governments must spend to treat victims of air pollution and the income lost because of ill health and premature deaths.
The Guardian notes this figure is higher than a 2013 IMF estimate because new World Health Organization data indicates harm caused by air pollution to be much higher than previously thought.
“Coal is the dirtiest fuel in terms of both local air pollution and climate-warming carbon emissions and is therefore the greatest beneficiary of the subsidies, with just over half the total,” reports The Guardian. “Oil, heavily used in transport, gets about a third of the subsidy and gas the rest.”
The report adds that global public offender number one is China’s coal-fired plants.
This source “provides $2.3tn of the annual subsidies.”
Here it is quite clear the IMF and Guardian are defining costs to health and the environment as “subsidies.”
“The next biggest fossil fuel subsidies are in the U.S. ($700bn), Russia ($335bn), India ($277bn) and Japan ($157bn), with the European Union collectively allowing $330bn in subsidies to fossil fuels,” reports The Guardian.
But regardless of how one defines a “subsidy,” the IMF does appear to support the long-held assertion of the hidden costs of oil.
To fortify this supposition, The Guardian cited Lord Nicholas Stern, an eminent 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,” said Stern. “There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”
What’s more, Stern said the IMF significantly underestimated true costs, no matter what you call them
“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,” Stern added.
According to the IMF working paper, if the “subsidies” were somehow ended, the number of premature deaths due to outdoor air pollution would be reduced by 1.6 million lives per year, or 50 percent of the present estimate.
Pursuing this line of thought further, the paper said countries could see an economic “game changer” by eliminating costs associated with fossil fuel subsides.