2023-08-27 20:00:00
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States spend vast amounts of money to support gas, petrol and coal – mostly with hidden subsidies.
Although everyone is talking about phasing out fossil fuels, a new report shows that last year states spent more money than ever before to subsidize fossil fuels such as gas, petrol and coal.
According to the report by the International Monetary Fund (IMF), it is seven trillion dollars – or seven percent of global economic output. China is number 1, followed by the USA. Most are hidden subsidies, says Nate Vernon, one of the report’s authors. Heating oil, natural gas or petrol are too cheap in most countries because their environmental costs are not priced in.
Consequences of the Russian invasion of Ukraine
Because fossil fuels are under-taxed, the public bears a large portion of the costs of climate change — or deaths from air pollution and traffic accidents, Vernon said.
Caption: Shell’s Pulau Bukom in Shanghai is one of the largest oil refineries in the world. (Photo taken 8/23/2023) REUTERS/Edgar Su
But the sharp increase in subsidies to a new record level is related to the fact that many countries have artificially reduced energy prices because world market prices have risen massively after the Russian invasion of Ukraine.
Oil prices had risen so much that they had to be cushioned for the weaker sections of the population and industry.
The energy expert and management consultant Cornelia Meyer also sees this as the main reason for the massive increase in subsidies for fossil fuels: “Of course, this is due to the fact that oil prices had risen so much that they had to be cushioned for the weaker sections of the population and for industry.”
Climate goals became secondary
That’s why many governments are pushing their climate goals aside: “When they talk to African countries or Asian emerging countries that still have to lift hundreds of millions of people out of poverty, they say they also have to do something socio-politically.”
IMF’s Nate Vernon agrees, but stresses that there are better ways than fossil fuel subsidies. These are very inefficient – they do not primarily benefit the poorer people, but the rich, because they consume the most energy.
International efforts to reduce subsidies
Vernon thinks it makes more sense to specifically support poorer households. Fewer subsidies would be needed, and more money would be left over to promote the transition to renewable energies and to build schools and hospitals.
On the other hand, the IMF expert also understands the concern of many countries that their industries could become less competitive without cheaper energy. That is why international cooperation is needed to reduce harmful subsidies. The G-20 have already spoken out in favor of this – and a reduction in subsidies for fossil fuels could also become an issue in the World Trade Organization WTO.
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