IMF highlights €260bn ‘gift’ to EU fossil fuels

Government subsidies to polluters continue to grow worldwide despite increasing pressure to decarbonise the global economy.

Fossil fuel subsidies across the world grew from $4.7 trillion in 2015 to $5.2 trillion in 2017  (€4.7 trillion), a new analysis by the International Monetary Fund (IMF) found.

China topped the charts with an estimated $1.4 trillion in 2015, followed by the United States ($649 billion), Russia ($551 billion) and the EU ($289 billion or €260 billion).

The study also found that if governments had set ‘efficient levels’ of fuel prices in 2015, they would have reduced global carbon emissions by 28% and deaths due to air pollution by 46%. Tax revenues would have also increased by 3.8% of global GDP.

Below is a breakdown of the amount of money that France, Germany and the United Kingdom – the three biggest countries in the EU selected by the IMF – directly and indirectly spent to subsidise fossil fuels in 2015.

Post-tax subsidies take into account external costs. Source: IMF

In terms of energy products, coal remains the largest source of subsidies (44%), followed by petroleum (41%), natural gas (10%), and electricity (4%).

What does all this mean?

Fossil fuel subsidies are generally described as direct payments by governments to oil, gas and coal companies and consumers or as tax exemptions and reductions on specific energy products such as diesel, petrol and kerosene.

However, the IMF goes a step further. The institution also factors in the negative externalities associated with the use of fossils fuels. These include, for example, the environmental cost of carbon emissions, air pollution deaths or illnesses, road congestion and accidents.

This may explain why the IMF figures are considerably higher than those reported by other organisations such as the Word Trade Organisation (WTO) or the Organisation for Economic Cooperation and Development (OECD).

Experts largely support this view, arguing that people ultimately pay the price for environmental degradation and toxic air pollution. In a recent report looking exclusively at climate change, the European Environment Agency (EEA) estimated that floods, droughts, heatwaves and other climate-related events caused losses of €453 billion and killed more than 115,000 people in Europe between 1980 and 2017.

Despite being one of the fastest growing sources of greenhouse gas (GHG) emissions, aviation is a prominent example of a sector that currently benefits from harmful tax exemptions. This week, a leaked study for the European Commission found that taxing kerosene – the fuel used by airlines – would cut aviation emissions by 11% while raising almost €27 billion in revenues every year.

The way forward

Eliminating fossil fuel subsidies is one of the priorities set out in the Paris Agreement, in which 174 countries and the EU pledged to limit a global temperature rise below 2 degrees Celsius above pre-industrial levels.

Experts point at three main areas of concern: low energy taxes; national and EU budgets being used to boost polluting infrastructure like airports; and the role of the European Investment Bank (EIB), the EU’s leading lending institution, which has continued to finance fossil fuel projects such as new gas pipelines and LNG import facilities.

In early 2018, the bank’s President Werner Hoyer was quoted as saying that he “cannot promise that at a special day in the future, [the EIB] will have stopped financing fossil fuels. It would not be honest.” “The member states that own us will say they do not follow that way,” he said.

According to Roland Joebstl, a policy officer with the European Environmental Bureau (EEB), Europe needs to redirect investments towards energy efficiency, renewable energy and circular economy instead.

“These subsidies are a gift to an industry, which is literally destroying the planet and killing people. The European Union must do more to align its funding strategy with the Paris Agreement. This is not someone’s opinion, it’s the reality we live in. So, let’s get real and stop wasting time and money,” he told META.