Governments Spent $5.3 Trillion in 2015 to Subsidize Fossils, Pay for the Damage

Governments spent US$5.3 trillion to subsidize fossil fuels in 2015 and pay for their economic impacts, adding up to an eye-popping 6.5% of global gross domestic product (GDP), according to a new study by researchers associated with the International Monetary Fund.

The study, published in the academic journal World Development [subs req’d], went beyond direct financial subsidies and tax expenditures to include indirect costs of fossil fuel extraction and use not charged to producers or consumers, such as the economic losses from early deaths attributed to air pollution and the costs of adapting to climate change.

“China was the biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6 trillion), and Russia, the European Union, and India (each with about $0.3 trillion),” the research team reported. “Eliminating subsidies would have reduced global carbon emissions by 21% and fossil fuel air pollution deaths 55%, while raising revenue by 4%, and social welfare by 2.2%, of global GDP.”

“If people knew how large” subsidies for fossil fuels truly were, asserts Guardian op ed writer John Abraham, “there would be a backlash against them from so-called financial conservatives.”

The writer breaks down why subsidies are a bad thing. “First, they promote fossil fuel use which damages the environment. Second, they are fiscally costly. Third, the subsidies discourage investments in energy efficiency and renewable energy that compete with the subsidized fossil fuels. Finally, subsidies are very inefficient means to support low-income households.”

Leaders of the G20 and G7 have repeatedly promised to reduce or eliminate direct subsidies for fossil fuel production and use. The authors of the latest study estimate that indirect subsidies are eight times greater than direct aid. Using its broader definition of subsidies, other IMF research concluded last year that Canada spends more than $46 billion a year propping up its fossil fuel industry and paying for the otherwise unaccounted “externalities” that fossil production leaves behind.

Abraham underlines “two key takeaway messages” in the study. One is the sheer size of fossil fuel subsidies “that we all pay, in one form or another.” The other is the insight that “subsidies persist in part because we don’t fully appreciate their size.”