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Fact-checking: state subsidies to fossil energy sources

Today we would like to take apart the story telling that renewables benefits too many subsidies from governments. The recently released International Monetary Fund’s (IMF) report Energy subsidy reform: the way forward gives interesting insights of the budgets of 176 countries. 



The report paints a desolating bleak picture: in 2011 the amount of public subsidies granted by governments to fossil energy sources was of $ 1.9 trillion (2,5% of world GDP). The three most "generous" countries were the US (502 billion), China (279 billion) and Russia (116 billion). On the other hand, the subsidies granted to renewables in 2011 amounted to 88 billion $ (International Energy Agency).

This is an enormous amount of public money spent unproductively, since fossil energy sources have nothing to do with future and sustainability. The IMF lists a number of problems caused by this flood of money, among which we highlight:

  • over-consumption of petroleum products, coal, and natural gas, resulting in higher CO2 emission and reduced incentives for investments in energy efficiency and renewables;
  • distorted resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries;
  • especially in Sub-Saharan Africa, artificially low prices due to subsidies constrain electricity suppliers’ ability to invest in energy capacity and improve service quality;
  • less resources allocated to health and education purposes.
Some might say that making people pay energy less is fair, especially in periods of economic crisis. But it is an illusion; subsidies are always paid by someone, usually in the form of higher taxes or negative environmental externalities. Eventually, subsidies are still paid by us. In addition, the increased use of fossil fuels is a threat to health. Eliminating energy subsidies would generate substantial environmental and health benefits. IMF’s report underlines that a subsidy reform reducing CO2 emissions by 4,5 billion tons would allow a 13% decrease in global energy-related CO2 emissions and other pollutants.



In the end, if coal, oil and natural gas were taxed considering also their impact on the environment, they would have much more difficulties to compete with renewables. Subsidies to fossil sources are effectively preventing a change in energy policy that would ensure a more sustainable future. It is time to claim a fair competition between  the various energy sources. And we have a pretty good idea of which would win it.

Click here to download the IMF's report