What cost fossil fuel?

Submitted by AWL on 2 June, 2015 - 6:07 Author: Paul Vernadsky

Fossil fuel capital continues to avoid paying the costs of its industry for air pollution and other health hazards, effectively receiving more in subsidies than the total health spending of all the world’s governments, according to a new IMF report.

How Large Are Global Energy Subsidies? Published last month found that fossil fuel companies are benefitting from global subsidies of $5.3 trillion (£3.4 trillion) a year, equivalent to $10 million a minute every day.

More than half the figure is money governments are forced to spend treating the victims of air pollution and the income lost because of ill health and premature deaths. The figure is higher than a earlier IMF estimate, because data from the World Health Organisation shows the harm caused by air pollution is much higher than previously thought.

Massive coal subsidies reflect the substantial undercharging for its environmental impacts — coal is the most carbon-intensive and air pollution intensive energy product. The IMF states that “no country really imposes meaningful taxes on coal use from an environmental perspective.” Petroleum is the next most heavily subsidised product, with the projected subsidy remaining at 1.8% of global GDP in 2015 despite declining petrol prices.

The biggest single source of air pollution is coal-fired power stations and China, not surprisingly given its population and reliance on coal power, provides $2.3 trillion of the annual subsidies. The next biggest fossil fuel subsidies are in the US ($700 billion), Russia ($335 billion), India ($277 billion) and Japan ($157 billion), with the European Union collectively allowing $330 billion in subsidies to fossil fuels. The fossil fuel subsidies massively exceed global subsidies for renewable energy, which are far smaller at $120 billion a year.

The UK is no exception to the fossil fuel subsidy bonanza. An Environmental Audit Committee report at Westminster in 2013 showed that energy subsidies in the UK were running at about £12 billion a year — mostly directed at fossil fuels. Last year Friends of the Earth calculated that the coalition government’s tax breaks were worth over £3 billion to the fossil fuels industry. These figures do not include the wider societal impact of fossil fuels on human health and the environment, as the new IMF data does.

Scrapping fossil fuel subsidies would make a dramatic contribution to tackling climate change. The IMF says it would reduce greenhouse gas emissions by 17%. However Vitor Gaspar, the IMF’s head of fiscal affairs (and a former Portuguese finance minister) still wants to make working people pay for these changes, arguing that “energy prices remain woefully below levels that reflect their true costs.”

Simply scrapping subsidies and putting up prices in a “freer” market would not solve all the issues. In fact in the short run it would force millions of workers into energy poverty. Cuts to fossil fuel subsidies have to be combined with massive public investment in alternative energy resources and democratic ownership and control over energy pricing — to ensure workers do not pay for climate policies.

But no one should fall for the argument that fossil fuels are a cheaper alternative to renewable sources, once the total costs are taken into account.

Add new comment

This website uses cookies, you can find out more and set your preferences here.
By continuing to use this website, you agree to our Privacy Policy and Terms & Conditions.