In a report released yesterday, Energy Subsidy Reform – Lessons and Implications, the IMF says reforming the system could spur economic growth and help the environment.

According to the report, current energy subsidies amount to $1.9tr worldwide–the equivalent of 2.5% of global GDP, or 8% of government revenues and IMF first deputy managing director David Lipton said that removing energy subsidies could strengthen incentives for “research and development in energy-saving and alternative technologies.”

Giving a speech in Washington DC, Lipton said that subsidies aggravated climate change and worsened local pollution and congestion.

The report finds that eliminating pre-tax subsidies would reduce global CO2 emissions by about 1-2%, which would, by itself, represent a significant first step in reducing emissions by delivering about 15-30% of the Copenhagen Accord’s goal.

Lipton also noted that in advanced economies, subsidies most often take the form of taxes that are too low to capture the true costs to society of energy use, including pollution and road congestion.

“Eliminating energy tax subsidies would deliver even more significant emissions reductions reducing CO2 emissions by 4.5 billion tonnes, a 13% reduction,” he said.

The World Wide Fund for Nature (WWF) has welcomed the message from the IMF, describing the maintenance of fossil fuel subsidies as a “global scandal”.

WWF global climate & energy initiative leader Samantha Smith said: “We strongly support transforming fossil fuel subsidies into an effective scheme for financing energy efficiency and renewables and making sure that the poor in developing countries benefit appropriately and receive clean, affordable and reliable energy.”

According to the WWF’s global energy policy director Stephan Singer, industrialised countries are responsible for the lion’s share of fossil fuel subsidies and should act now to stop them.

“If they were to abolish those subsidies and reform towards renewables and energy efficiency investments, it would more than triple present global investment into renewables. And that is what is needed for a world powered by 100% sustainable renewables,” he said.

Conor McGlone

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