IMF: Fossil fuel subsidies reached record high of $7trn in 2022
Despite pledges from nations to scale back fossil fuel subsidies as part of climate plans, the sector benefitted from record subsidies of $13m per minute in 2022.
That is according to the International Monetary Fund’s (IMF) new data, which covers subsidies from nations, states and regions to the value chains for coal, oil and gas.
The data reveals that $7trn, the equivalent of 7% of GDP, was allocated to these subsidies during the 2022 calendar year. For context, around 4% of global GDP is used to support education.
Many nations dramatically increased subsidies intended to shield energy consumers from rising costs of fuel during the price crisis. The IMF recorded a year-on-year doubling of these so-called ‘explicit’ subsidies.
Nonetheless, only 20% of the subsidies allocated last year were ‘explicit’. Most were used to benefit companies including fossil fuel extractors and combustion plants. Coal still benefitted from 30% of these ‘explicit’ subsidies, a greater share than was allocated to gas.
The biggest subsidizer of coal is China. Following close behind are Russia, the US and India.
The IMF has warned that efforts to deliver the Paris Agreement on climate change will likely fail without a major focus on reforming energy sector subsidies.
“We are in this situation because it can be very difficult to increase taxes on fossil fuels, not least when countries are acting unilaterally,” said the IMF’s principle environmental fiscal policy expert Ian Parry.
IMF analysis has concluded that a complete end to fossil fuel subsidies by 2030 would prompt a rapid (yet disorderly) energy transition that would reduce annual global emissions by 2030. It is emphasising that an orderly transition should be planned to avoid political backlash and backsliding on goals relating to work and skills.
Plans in the pipeline
The G7 group of nations has pledged to end all “inefficient” fossil fuel subsidies by 2025. Debate remains about how “inefficiency” can be quantified and when these nations can reasonably end all subsidies.
G20 nations have long been encouraged to follow the suit of the G7. It has made the same commitment but set no end-date and no definition of inefficiency.
The G20 provided $693bn of support in 2021, the highest level since 2014, it was confirmed late last year.
This week, it was revealed by the International Institute for Sustainable Development (IISD) think tank that this amount skyrocketed to $1.4trn in 2022.
Like the IMF, the ISSD concluded that most subsidies (two-thirds) were allocated to support producers and investors rather than to support customers with higher energy costs.
“This support perpetuates the world’s reliance on fossil fuels, paving the way for yet more energy crises due to market volatility and geopolitical security risks,” stated the IISD.
“It also severely limits the possibilities of achieving climate objectives set by the Paris Agreement by incentivising greenhouse gas emissions while undermining the cost-competitiveness of clean energy.”
G20 members are set to meet in India on 9 September for this year’s annual summit. The energy transition and energy security are expected to be major talking points as the price crisis continues and as COP28 in Dubai looms on the near horizon.
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