By Arman Kazemi
May 28, 2015
The International Monetary Fund has taken a broad approach to measuring energy subsidies, according to a new report that estimates subsidies to the sector of up to $5.3 trillion for 2015.
The report, How Large Are Global Subsidies, defines subsidies as any support—financial or otherwise—that insulate fossil fuel producers from market realities. This includes direct forms of financial benefits such as tax cuts, interest-free loans and price controls.
These direct subsidies alone account for $400 to $500 billion a year spent on fossil fuels. But to get to the $5.3 trillion figure, which is almost 6.5 per cent of global GDP, researchers at the IMF used a variety of indirect measures which underestimate the real cost of fossil fuels.
Indirect measures include the contribution of fossil fuels to climate change, healthcare costs related to pollution as well as environmental and ecological degradation. Other indirect measures include traffic congestion, motor-vehicle accidents and fatalities, which the IMF report pegs at 39 per cent of its total global fossil fuel subsidies tally. The report argues that by considering the true cost of fossil fuels, renewable energy is in many cases cheaper.
According to a separate report from the Auditor General of Canada, the fossil fuel industry received $1.47 billion in subsidies between 2008 and 2013, with an additional $2 billion in tax relief “attributed to the oil, gas, mining, and clean energy sectors,” of which “fossil fuels represent a majority of revenue.”
Scholars have recently researched how Canada could transition towards a low carbon economy, starting with the measurement of the true cost of fossil fuels. By identifying and pricing carbon emissions, momentum for renewable energy and efficiency technologies would build.
Both the IMF and Canadian scholars are arriving at the same conclusion: when the true cost of fossil fuels are measured, a host of indirect and implicit subsidies are found. Eliminating these subsidies offers one of the most efficient means of reducing carbon emissions and promoting renewable energy.
With energy prices currently depressed, the IMF concludes that, “countries should take advantage of the low international energy prices and gradually move toward efficient energy pricing.” With a new government in Alberta and a forthcoming federal election, Canada’s policymakers now have an opportunity to respond.
