What’s the simplest way to tackle global warming? Make sure that fossil fuels are priced properly and not subsidized.
That’s the core idea behind a large new report (pdf) from the International Monetary Fund, which argues that the world “misprices” fossil fuels to the tune of some $1.9 trillion per year.
Eliminating these subsidies, the IMF argues, and replacing them with appropriate carbon taxes could cut global greenhouse-gas emissions by 13 percent, curtail air pollution, and shore up the finances of many poorer countries now in debt trouble.
So let’s take a closer look at the IMF’s numbers. Energy subsidies, the report argues, come in two very different flavors:
–$480 billion in direct subsidies for consumption. This is what we typically think of as “fossil fuel subsidies.” In 2011, governments around the world spent some $480 billion to lower the price of petroleum, natural gas, coal, and electricity for their citizens.
–$1.4 trillion in “mispricing.” This is the trickier part of the analysis. The IMF report argues that governments should be taxing fossil fuels appropriately in order to take account of the air pollution and climate damage they cause. Standard economic models peg these “externalities” at about $25 per ton of carbon dioxide. So, the failure to price these fossil fuels correctly amounts to a subsidy of some $1.4 trillion worldwide.
Once this is taken into account, the countries that subsidize fossil fuels most heavily are the United States ($502 billion per year), China ($279 billion per year), and Russia ($116 billion). Here’s how it breaks down by region:
The IMF’s Carlo Cottarelli has some more commentary on how to phase out energy subsidies here. His bottom line? “Eliminating energy subsidies is not impossible.”
washingtonpost