BAKU, Azerbaijan, August 29. Fossil-fuel subsidies are expected to have reached an unprecedented high of $7 trillion in 2022, Trend reports.
According to the research done by the International Monetary Fund (IMF), these subsidies gained momentum as governments across the globe extended support to consumers and businesses in the wake of escalating energy prices and the ongoing recovery from the pandemic-induced downturn.
While the world grapples with the formidable task of curbing global warming to within the 1.5-degree Celsius limit, regions including Asia, Europe, and the US contend with intense heatwaves. Paradoxically, subsidies directed towards oil, coal, and natural gas translate to a staggering 7.1 percent of the global gross domestic product. This financial commitment surpasses annual government expenditures on education (equivalent to 4.3 percent of global income) and constitutes about two-thirds of their healthcare allocations amounting to 10.9 percent.
It is essential to recognize that the utilization of fossil fuels exacts a heavy toll on the environment, primarily due to local air pollution and the broader implications of global warming. Interestingly, a substantial portion of these subsidies is implicit, as environmental expenses often remain unaccounted for in fossil fuel prices, particularly in the cases of coal and diesel.
The IMF's analysis divulges that consumers were exempted from paying over $5 trillion in environmental expenses during the previous year. This astonishing figure would nearly double if climate damage were valued according to a recent study published in the esteemed scientific journal Nature, rather than our fundamental assumption that the costs of global warming are commensurate with the emissions price necessary to meet the temperature objectives of the Paris Agreement.
Anticipated trends indicate that these implicit subsidies are set to expand as developing nations, characterized by higher-pollution power plants, factories, and vehicles, along with densely populated areas in proximity to these pollution sources, heighten their fossil fuel consumption to approach levels seen in advanced economies.
The removal of explicit subsidies and the implementation of corrective taxes would result in elevated fuel prices. This shift would compel both businesses and households to factor in environmental expenses while making consumption and investment decisions. The subsequent outcome would be a considerable reduction in global carbon dioxide emissions, cleaner air, a decline in lung and heart ailments, and more financial room for governments.
Thus, the IMF's estimates suggest that the elimination of explicit and implicit fossil-fuel subsidies could thwart 1.6 million premature deaths annually, elevate government revenues by $4.4 trillion, and set emissions on a trajectory towards attaining global warming objectives. Moreover, this approach would also lead to a redistribution of income, as fuel subsidies disproportionately favor affluent households over their less privileged counterparts.
However, dismantling fuel subsidies necessitates a thoughtful approach. Governments must carefully design, articulate, and execute reforms as part of a comprehensive policy framework that emphasizes the manifold advantages, the Fund said. A portion of the augmented revenues should be channeled towards compensating vulnerable households for the anticipated increase in energy costs. The remainder could be allocated to reducing taxes on employment and investment, as well as financing public goods like education, healthcare, and clean energy.
As global energy prices retreat while emissions continue to rise, the present moment is ripe for phasing out both explicit and implicit fossil-fuel subsidies. This pivotal action promises a healthier, more sustainable planet for current and future generations, the research concluded.