Fossil Fuel Subsidies Surge To Record $7trn

 

Fossil Fuel Subsidies Surge To Record $7trn

Fossil-fuel subsidies surged to a record $7 trillion last year as governments supported consumers and businesses during the global spike in energy prices caused by Russia’s invasion of Ukraine and the economic recovery from the pandemic.

As the world struggles to restrict global warming to 1.5 degrees Celsius and parts of Asia, Europe and the United States swelter in extreme heat, subsidies for oil, coal and natural gas are costing the equivalent of 7.1 percent of global gross domestic product. That’s more than governments spend annually on education (4.3 percent of global income) and about two thirds of what they spend on healthcare (10.9 percent). Our findings come as the World Meteorological Organization says July was the hottest month on record, underscoring the urgent need to curb human-induced climate change.

As the Chart of the Week shows, fossil-fuel subsidies rose by $2 trillion over the past two years as explicit subsidies (undercharging for supply costs) more than doubled to $1.3 trillion. That’s according to our new paper, which provides updated estimates across 170 countries of explicit and implicit subsidies (undercharging for environmental costs and forgone consumption taxes).

Consuming fossil fuels imposes enormous environmental costs—mostly from local air pollution and damage from global warming. The vast majority of subsidies are implicit, as environmental costs are often not reflected in prices for fossil fuels, especially for coal and diesel.

Our analysis shows that consumers did not pay for over $5 trillion of environmental costs last year. This number would be almost double if damage to the climate was valued at levels found in a recent study published in the scientific journal Nature instead of our baseline assumption that global warming costs are equal to the emissions price needed to meet Paris Agreement temperature goals.

These implicit subsidies are projected to grow as developing countries—which tend to have higher-polluting power plants, factories, and vehicles, along with dense populations living and working close to these pollution sources—increase their consumption of fossil fuels toward the levels of advanced economies.

If governments removed explicit subsidies and imposed corrective taxes, fuel prices would increase. This would lead firms and households to consider environmental costs when making consumption and investment decisions. The result would be cutting global carbon-dioxide emissions significantly, cleaner air, less lung and heart disease, and more fiscal space for governments.

We estimate that scrapping explicit and implicit fossil-fuel subsidies would prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track toward reaching global warming targets. It would also redistribute income as fuel subsidies benefit rich households more than poor ones.

Yet removing fuel subsidies can be tricky. Governments must design, communicate, and implement reforms clearly and carefully as part of a comprehensive policy package that underscore the benefits. A portion of the increased revenues should be used to compensate vulnerable households for higher energy prices. The remainder could be used to cut taxes on work and investment and fund public goods such as education, healthcare, and clean energy. With global energy prices receding and emissions rising, it’s the right time to phase out explicit and implicit fossil-fuel subsidies, for a healthier and more sustainable planet.

In a worrying global trend, fossil fuel subsidies have reached an all-time high, rising to a staggering $7 trillion according to recent reports. This alarming increase in financial support for fossil fuels comes at a time when the world is grappling with the urgent need to transition to sustainable energy sources. This article delves into the implications of this record number and examines the environmental and economic challenges it presents on a global scale.

Fossil fuel subsidies: a worrying upward trajectory

Recent figures reveal that fossil fuel subsidies have seen an unprecedented increase, climbing to $7 trillion. These subsidies, offered primarily by governments to reduce the cost of fossil fuel production and consumption, represent a significant obstacle to efforts to combat climate change. The shocking number highlights the mismatch between fossil fuel subsidies and the world's commitment to the carbon reduction targets set out in the Paris Agreement.

Environmental Consequences of Excessive Subsidy

The increase in fossil fuel subsidies further exacerbates environmental degradation. By making fossil fuels more available, governments inadvertently encourage their consumption, leading to higher carbon emissions and air pollution. The resulting damage to ecosystems, biodiversity and air quality contributes to a vicious cycle of environmental degradation that threatens current and future generations.

Economic consequences: missed opportunities and budgetary burdens

While governments argue that fossil fuel subsidies are necessary to support local economies and ensure energy security, the long-term economic consequences are often overlooked. The $7 trillion allocated to these subsidies could instead be channeled into renewable energy initiatives, green technology and job creation in the clean energy sector. This misallocation of resources not only perpetuates our dependence on finite fossil fuel resources, but also prevents the growth of sustainable industries with the potential to drive economic prosperity.

Navigating the clean energy transition

The increase in fossil fuel subsidies underscores the urgency of the transition to cleaner and more sustainable energy sources. Renewable technologies such as solar, wind, hydro and geothermal energy offer viable alternatives to fossil fuels. However, for this transition to be successful, governments must shift their financial support from fossil fuel subsidies to incentives to adopt renewable energy solutions.

International cooperation and policy reform

Addressing the problem of skyrocketing fossil fuel subsidies requires international cooperation and policy reform. Governments, industry leaders and civil society must work together to redefine energy policy, remove counterproductive subsidies and support the growth of green industries. Diverting financial resources from fossil fuels to renewable energy projects can accelerate the global transition to a low-carbon economy.

The record increase in fossil fuel subsidies to $7 trillion sends a clear message: urgent action is needed to steer our planet back from the brink of ecological disaster. As governments around the world grapple with post-pandemic economic recovery, there is an unprecedented opportunity to reshape energy policy and promote a sustainable future. By embracing renewable energy, phasing out counterproductive subsidies and promoting international cooperation, we can pave the way for a greener and more prosperous world. The time for change is now.