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Video: IMF First Deputy Managing Director on "Energy Subsidy Reform - Lessons and Implications"

2 min. read

The International Monetary Fund (IMF) is out with an important new study, which provides "the most comprehensive estimates of energy subsidies currently available for 176 countries," along with "an analysis of 'how to do' energy subsidy reform, drawing on insights from 22 country case studies undertaken by IMF staff and analyses carried out by other institutions." One key takeaway from the IMF report is the staggering size of global fossil fuel subsidies: $1.9 trillion, counting both direct subsidies and also "negative externalities from energy consumption," in 2011 alone. However, as David Roberts of Grist helpfully points out, the IMF estimates of fossil fuel subsidies are almost certainly too low, given the IMF's significant underestimate of the "social cost of capital." According to Roberts:

... if carbon were responsible for half the indirect subsidies, and the SCC were $83 instead of $25, the grand total of annual global fossil fuel subsidies would rise from $1.9 trillion to around $3.5 trillion.

Three and a half trillion dollars a year. That’s about 5 percent of global GDP. Crazy.

Another factoid that jumps out at us is the main reason why the IMF decided not to include renewable energy subsidies: namely, that they "involve such a small share of energy use" that "disaggregated data by country are not widely available." That's right: renewable energy subsidies are so small, both in absolute terms and even more so relative to enormous fossil fuel subsidies, that the IMF didn't even think it was worthwhile to worry about them in their study of world energy subsidies. So much for all the clean energy deniers out there who claim that renewable energy gets too many subsidies. Wrong.

With that, we wanted to share this video from the IMF website, in which David Lipton, IMF's First Deputy Managing Director, "present[s] the new IMF study 'Energy Subsidy Reform—Lesson and Implications" at the Peterson Institute on March 27, 2013.'" According to Lipton, fossil fuel subsidies are a "burden" to fiscal sustainability, balance of payments viability, and higher economic growth. Even worse, Lipton points out, the adverse effects of "inefficient fossil fuel subsidies...go well beyond the fiscal costs" to problems like "reinforc[ing] inequality," "aggravat[ing] climate change," and "worsen[ing] local pollution as well as congestion." On the positive side, getting rid of fossil fuel subsidies would "play a significant role in offsetting climate change," which is one of the main reasons why, in Lipton's view, "the time has come for subsidy reform and carbon taxation." We couldn't agree more.