The International Monetary Fund has urged nations to slash their $US1.9 trillion ($1.8 trillion) in annual energy subsidies because they increase inequality, boost greenhouse gas emissions and limit investment in renewable energy.
While many nations use energy subsidies to shield consumers from rising prices, benefits tend to be grabbed by higher-income households. The outlays also sap funds available for bigger improvements to the wellbeing of the poor, such as health and education spending.
"Subsidies cause over-consumption of petroleum products, coal, and natural gas, and reduce incentives for investment in energy efficiency and renewable energy," the IMF said. "This over-consumption in turn aggravates global warming and worsens local pollution."
The removal of fossil-fuel subsidies would cut global carbon dioxide emissions by 4.5 billion tonnes - or about eight times Australia's annual emissions. Sulphur dioxide pollution would also drop by 13 million tonnes if the subsidies ended.
The IMF listed the top three energy subsidisers as the US ($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 the Australian National University'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 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 also rises if the contribution to climate change from the extra greenhouse gases is included. The IMF used US estimates to price such damage at $US25 for 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 a billion dollars."
The local pollution costs from an average coal plant in the US were put at $US65 a tonne, the IMF said.
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 favoured 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.
"Compared to most other developed countries, we are very low when it comes to petrol tax," Dr Burke said, with only nations such as US and Canada charging less.