Global fossil fuel subsidies cost the planet R63-trillion a year

People across the world are subsidising the fossil fuel industry to the tune of R63-trillion a year, according to research released by the International Monetary Fund (IMF) this week. It called this figure “shocking” and called for a change in how the energy form is valued.  

In comparison, renewable energy subsidies worldwide were R1.4-trillion this year, it said.

“How large are global energy subsidies?” is one of the first global assessments of both the external costs of fossil fuels and the tax subsidies given to industry. 

The fund’s primary finding was: “Post-energy tax subsidies are dramatically higher than estimated — $5.3-trillion by 2015.” These subsidies were “large and pervasive” in both advanced and developing countries, being the equivalent of 18% of some GDPs.

The IMF split its calculation between the subsidies that fossil fuel companies got from governments and the environmental cost of their operations. The former came in the form of tax breaks and, for example, lower cost electricity for operations. 

The latter included the costs that are externalised and borne by the environment and people. These include carbon emissions — which accelerate climate change — and the cost of people going to hospital for chest problems. Most of the costs come from what governments have to spend treating the victims of air pollution, it said. 

The worst cost came from coal, it said, with the largest single source being coal-fired power stations in China. These cost $2.3-trillion in externalities each year. 

Due to their impact on accelerating climate change, the full cost of subsidies to fossil fuels included $1.3-trillion a year. This came from a calculation of a tax of $42 a tonne on all carbon emissions around the world. In most countries there is no tax on emissions. 

Paying the full cost for fossil fuels
The South African tax is being implemented by the treasury and should have come into effect on January 1 2015, but it has been put back by several years. It would put a R120 charge on each tonne of carbon emitted by industry.  

“The fiscal, environmental and welfare impacts of energy subsidy reform are potentially enormous,” it said. If post-tax subsidies were to be removed this year, global governments would have an extra $2.9-trillion in revenue. This is the equivalent of 3.6% of global GDP, it said. 

Carbon emissions worldwide would also drop by 20% as a result of full cost of fossil fuels being included in their price. This would come as the higher price of the fuels would lead to companies lowering their emissions, with things such as filters on smokestacks, it said. “This is very significant and would represent a major step towards de-carbonisation ultimately needed to stabilise the global climate system.”  

Deaths from fossil fuels
In Africa deaths from air pollution would halve. This would stop 1.8-million premature deaths from air pollution globally, it said. The World Bank reported last year that 3.7-million people a year died prematurely due to air pollution globally.  

The huge costs borne by consumers in healthcare, where people have to spend money on things such as asthma treatment, would also be cut. The study found that this spending is $1.8-trillion a year.   

There is little research in South Africa about the impacts and costs of air pollution. But Eskom impact assessments — seen by the Mail & Guardian last year — said that up to 600 people a year would die if the utilities’ entire coal fleet was online.

Sipho Kings
Sipho is the Mail & Guardian's News Editor. He also does investigative environment journalism.
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