The World Blows Over $5 Trillion a Year on Oil and Gas Subsidies: Report
The staggering number shows why failure to account for climate change, air pollution, and other societal ills when it comes to fossil fuel extraction is often described as the biggest market failure ever, and also that maybe the market isn’t going to save us.
Thinking about $5.2 trillion is hard. It’s equivalent to 6.5 percent of the entire world’s annual GDP. It’s more than France and Germany’s GDP combined. It’s $164,890.91 of money wasted per second in a year. But one thing is obvious: it is an absolutely stupid amount of money to be throwing away on something that is actively harmful to life on Earth.
IMF’s report released late last week breaks down where the huge figure comes from. On the one hand, you have you have your direct price subsidies that help offset costs consumers pay for, say gas or heating oil. Those totals are still profound at more than $300 billion in 2017, but the real subsidies are hidden in the impacts burning fossil fuels have on society. Burning oil, gas, and coal cause widespread health problems tied with air pollution and disrupt the climate, and fossil fuels aren’t paying their fair share.
In their calculations, IMF relies on a metric called the social cost of carbon to estimate these hidden subsidies. It uses a middle of the road estimate of $40 per ton of carbon, with a 3 percent rise annually. While there are lines of research showing a carbon tax of $40 per ton isn’t high enough, that’s how IMF arrives at its $5.2 trillion figure.
Using 2015 data, the report also breaks down subsidies by individual countries. The biggest subsidizer by far is China, which committed $1.4 trillion to subsidizing fossil fuels. The U.S. wasted $649 billion, the equivalent of using $2,028 per person to set the world on fire.
If fossil fuels were correctly priced in 2015, IMF’s research shows carbon emissions would have been 28 percent lower and 46 percent fewer people would’ve died from air pollution, which kills 4.2 million annually. Tax revenues would also have gone up 3.8 percent and the total economic benefits would have been equal to 1.7 percent of global GDP.
As things are currently structured, dirty fossil fuels like coal are an increasingly tenuous bet financially. But then they’ve also become indefensible scientifically as the world inches closer to catastrophic climate change. Despite this, the world continues to kowtow to entrenched interests. And the longer it does, the more this and future generations will suffer the consequences.