The International Monetary Fund has released a new report on the global cost of energy subsidies, and it isn’t pretty. Their research shows that post-tax subsidies to fossil fuel companies from world governments reached $1.9 trillion in 2011. Researchers found that post-tax subsidies in some countries exceed spending on education and healthcare by as much as 700%. According to the report, Energy Subsidy Reform – Lessons and Implications:
On a pre-tax basis, subsidies for petroleum products, electricity, natural gas, and coal reached $480 billion in 2011. The cost of subsidies is especially acute in oil exporters, which account for about two-thirds of the total. On a post-tax basis—which also factors in the negative externalities from energy consumption—subsidies are much higher at $1.9 trillion.
While aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources. Most subsidy benefits are captured by higher-income households, reinforcing inequality. Even future generations are affected through the damaging effects of increased energy consumption on global warming.
The report shows that nearly half of all fossil fuel subsidies go to petroleum companies. Its findings are consistent with their earlier report, Petroleum Product Subsidies: Costly, Inequitable, and Rising, which concluded that:
Halving tax-inclusive subsidies could reduce projected fiscal deficits by one-sixth in subsidizing countries and could reduce greenhouse emissions by around 15 percent over the long run.