IMF: Fossil fuel subsidies hit RM6t

Govts around the world are failing to deliver on promises to wind down subsidies, even as climate change impacts worsen 

DESPITE repeated government pledges to cut back on fossil fuel subsidies, a new report found such subsidies surged to a record US$1.3 trillion (RM5.95 trillion) last year. 

The report by the International Monetary Fund (IMF) looked at both explicit and implicit subsidies for fossil fuels across 170 countries. It found explicit subsidies alone have more than doubled since the previous IMF assessment, rising from US$500 billion in 2020 to US$1.3 trillion in 2022 as governments rushed to mitigate the inflationary impact of Russia’s invasion of Ukraine and the spike in demand caused by the economic recovery from Covid-19. 

Those subsidies are direct monetary support for fossil fuels through activities like regulated prices set below international levels and energy bill rebates. 

IMF also calculates implicit fossil fuel subsidies, which include the cost of things such as undercharging for environmental costs and failing to levy taxes on consumption. Adding those in and the total subsidies ballooned to US$7 trillion in 2022. That’s an increase of US$2 trillion compared to 2020. 

The findings dovetail with a report that came out earlier last week by the International Institute for Sustainable Development (IISD), a Canada-based think tank, which found that public monies in Group of 20 (G-20) countries alone going to explicit fossil fuel subsidies more than quadrupled to US$1 trillion in 2022 compared to a year ago. 

The two reports put into stark relief the chasm between nations’ stated goals on the urgency of cutting back on fossil fuels and their actions. 

In 2015, the world’s nations signed onto 17 United Nations’ (UN) Sustainable Development Goals (SDGs), which included a commitment to phase out fossil fuel subsidies. That commitment was made more explicit at COP26 in 2021, when 197 countries agreed to accelerate the phaseout of what the pact dubbed “inefficient subsidies”. 

“We are overflowing with government commitments to phase out support for fossil fuels, but there is a serious drought in implementation,” said Christopher Beaton, who researches sustainable energy consumption for IISD. “During the last two years, at the international level, we have gone backwards.” 

Going backwards has serious implications for the world’s efforts to hold global warming to within 1.5oC of pre-industrial levels. Even at just 1.2oC (2.2oF) of warming, the world is experiencing devastating heat and disasters that have been worsened by climate change. This past July was the hottest month the globe has ever recorded, coming amid a summer of deadly wildfires, heat waves and floods. 

The climate will only become more volatile if humans keep pouring greenhouse gasses into the atmosphere, and continuing to subsidise fossil fuels raises that risk. 

“Fossil fuel subsidies keep the prices low, which increases consumption, and they are encouraging new projects that would never otherwise take place,” Beaton noted. 

The IMF authors said that removing explicit fuel subsidies and imposing taxes on environmental costs, including CO2 and other air pollutants, would reduce global CO2 emissions by 34% below 2019 levels by 2030. Bloomberg 

  • This article first appeared in The Malaysian Reserve weekly print edition