IMF calls for end to global fuel subsidies
While many nations use subsidies to shield consumers from rising prices, benefits tend to go to higher-income households. The outlays also sap funds for bigger improvements to the wellbeing of the poor, such as health and education.
"Subsidies cause over-consumption of petroleum products, coal and natural gas and reduce incentives for investment in energy efficiency and renewable energy," the IMF said. "This over-consumption in turn aggravates global warming and worsens local pollution."
The removal of fossil fuel subsidies would cut global carbon dioxide emissions by 4.5 billion tonnes - about eight times Australia's annual emissions. Sulphur dioxide pollution would drop by 13 million tonnes.
The IMF listed the top three energy subsidisers as the US ($US502 billion), China ($US279 billion) and Russia ($US116 billion). Petroleum and electricity subsidies accounted for three-quarters of the pre-tax subsidies, with natural gas accounting for most of the rest and coal subsidies worth about $US6 billion, the IMF said.
The survey did not include subsidies received by renewable energy producers
"Subsidising clean energy is slightly more benevolent than subsidising a depletable, polluting resource," said Paul Burke, a research fellow at ANU's Crawford School of Public Policy.
Australia's subsidies for petroleum products, natural gas and coal amounted to 1.79 per cent of gross domestic product in 2011, or about $20 billion. The IMF did not give a figure for electricity subsidies.
A paper by the ANU's Centre for Climate Economics and Policy in 2011 estimated federal subsidies - in the form of excise exceptions - accelerated depreciation of fossil fuel-producing assets and other benefits would total $9.65 billion in the 2013-14 fiscal year. State government subsidies in the form of cheap coal and cut-price power contracts for aluminium smelters would swell the largesse by at least $1 billion a year.
The cost of subsidising fossil fuels rises if the contribution to climate change from extra greenhouse gases is added in.
The IMF used US estimates to price such damage at $US25 per tonne of carbon emitted - not far off Australia's carbon tax of $23 a tonne.
"This figure would give you, in the absence of a price on carbon, a $US10.3 billion subsidy to energy in Australia," said Erwin Jackson, deputy chief executive of the Climate Institute. "With the carbon laws, this is reduced to less than $1 billion."
Dr Burke said Australia would probably be a net taxer of energy if fuel taxes and other charges were taken into account. Even so, government policies favour some industries over others.
"When we drive, we pay about 50¢ per litre in tax for petrol but when we fly we're only paying about 2¢ a litre," Dr Burke said.
The decision not to link the fuel excise directly to the inflation rate meant Australia was slipping down the ranks of fuel-taxing nations, he said.
Frequently Asked Questions about this Article…
The IMF urged nations to slash about US$1.9 trillion a year in energy subsidies because they increase inequality, raise greenhouse gas emissions, encourage over‑consumption of fossil fuels and reduce incentives to invest in energy efficiency and renewable energy—factors that can reshape energy markets and long‑term investment returns.
Global energy subsidies total around US$1.9 trillion annually. The IMF found that petroleum and electricity make up about three‑quarters of pre‑tax subsidies, natural gas accounts for most of the remainder, and coal subsidies are relatively small (about US$6 billion).
The IMF listed the top three energy subsidisers as the United States (about US$502 billion), China (about US$279 billion) and Russia (about US$116 billion).
Removing fossil fuel subsidies would cut global CO2 emissions by about 4.5 billion tonnes — roughly eight times Australia’s annual emissions — and reduce sulphur dioxide pollution by about 13 million tonnes, according to the IMF.
The IMF found that while subsidies are often intended to shield consumers from high prices, the benefits tend to flow to higher‑income households and divert public funds away from services that more directly improve the wellbeing of the poor, such as health and education.
Australia’s subsidies for petroleum products, natural gas and coal were about 1.79% of GDP in 2011 — roughly A$20 billion — though the IMF didn’t give a figure for electricity subsidies. A 2011 ANU paper estimated federal subsidies (via excise exceptions, accelerated depreciation and other benefits) at about A$9.65 billion for 2013–14, with state‑level support for cheap coal and cut‑price power contracts adding at least around A$1 billion a year.
The IMF used an estimate of US$25 per tonne of carbon to price climate damage — close to Australia’s carbon tax of A$23 per tonne. Using that damage price, analysts estimated Australia would face about a US$10.3 billion energy subsidy in the absence of a carbon price; with Australia’s carbon laws in place that figure was reduced to less than US$1 billion, according to the Climate Institute.
Investors should watch reforms that reduce fossil fuel subsidies or change fuel taxes because the IMF says such moves can shift consumption patterns, reduce pollution and increase incentives for renewable and energy‑efficiency investment. Locally, look for changes in fuel excises, links to inflation (which affect relative tax levels on driving vs flying) and state contracts that favour energy‑intensive industries, since these policies can influence sector competitiveness and capital allocation.
Call 1300 880 160
Start a chat
Schedule a call
