The IMF Decries the Distortions of Fossil Fuel Subsidies; Working at a Cross-Purpose with Climate Compatible Investment

A new report from the International Monetary Fund enumerates the economic problems caused by fossil fuel subsidies, including aggravating fiscal imbalances; crowding out priority public spending and private investment; encouraging excessive energy consumption; artificially promoting capital-intensive industries(thus discouraging employment creation); reducing incentives for investment in renewable energy; and accelerating the depletion of natural resources. The report continues, “As most subsidy benefits are captured by higher-income households, energy subsidies have important distributive consequences that are often not fully understood.”  

Importantly, the paper includes what it calls “the most comprehensive estimates of energy subsidies available covering petroleum products, electricity, natural gas, and coal.” The report estimates the post-tax subsidies for energy around the world at $1.9 trillion in 2011, with the top three subsidizers, in absolute terms: the United States ($502 billion), China ($279 billion), and Russia ($116 billion).

Read Energy Subsidy Reform: Lessons and Implicationsat:http://www.imf.org/external/np/pp/eng/2013/012813.pdf.

A related paper by the Overseas Development Institute throws light on the current dilemma of international carbon development goals and fossil fuel subsidies. For examples, it points out that five countries (China, Egypt, India, Indonesia and Mexico), appear in both the list of top 12 recipients of climate finance and the list of top 12 providers of fossil-fuel subsidies to domestic consumers. See At Cross-Purposes: Subsidies and Climate Compatible Investment at: http://www.odi.org.uk/publications/7343-subsidies-climate-compatible-investment-fossil-fuel-private-finance 

 

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