Read, Debate: Engage.
Read, Debate: Engage.
map tooltip
Humans · Nature · Economy

The climate disaster is subsidized

August 25th, 2015
in:Humans, Nature, Economy
by:Itai Lahat
located in:United Kingdom

Back at January of this year, the University College London published a first of its kind report that tried to estimate which fossil fuel reserves will have to be left in the ground to prevent dangerous climate change.

That is to keep global temperature rise under 2C. Christophe McGlade, who led the new research published in the journal Nature, found that trillions of dollars of known and extractable coal, oil and gas, including most Canadian tar sands, all Arctic oil and gas and much potential shale gas, cannot be exploited if the global temperature rise is to be kept under the 2C safety limit agreed by the world’s nations. Currently, the world is heading for a catastrophic 5C of warming and the deadline to seal a global climate deal comes in December at a crunch UN summit in Paris.

The absurd is of course that governments are supporting findings of new reserves of oil, gas and coal, with large and generous energy subsidies for fossil fuel companies. The actual sum of these subsidies stands globally on 320 billion dollars. But a new and startling estimate by the International Monetary Fund that was released last week, found the actual costs in direct and indirect subsidies is much higher -  $5.3tn.

A subsidy is usually the money given directly by tax payers to a certain sector, but subsidies can be calculated with the total costs to tax payers, in cases that a certain sector causes other effects that will end up being paid by taxing. And that’s the case of the energy sector. The vast sum of 5.3 trillion is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas. These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change.

The IMF, one of the world’s most respected financial institutions, said that ending subsidies for fossil fuels would cut global carbon emissions by 20%. That would be a giant step towards taming global warming, an issue on which the world has made little progress to date. Ending the subsidies would also slash the number of premature deaths from outdoor air pollution by 50% – about 1.6 million lives a year. Furthermore, the IMF said the resources freed by ending fossil fuel subsidies could be an economic “game-changer” for many countries, by driving economic growth and poverty reduction through greater investment in infrastructure, health and education and also by cutting taxes that restrict growth.

The new calculation by the IMF reveals the true costs of our so called “cheap oil”. The IMF calls the revelation “shocking” and says the figure is an “extremely robust” estimate of the true cost of fossil fuels. The $5.3tn subsidy estimated for 2015 is greater than the total health spending of all the world’s governments. Another way to look at this monstrous number comes with the understanding that it represents 6.5% of global GDP.

But perhaps the best way to look at these shocking revelations is to compare them with subsidies for renewable energy – a relatively tiny $120bn a year. Is it time to change the way we perceive the competiveness of Renewables Vs. Fossil? One might think the answer is clear, or as Vitor Gaspar, the IMF’s head of fiscal affairs and former finance minister of Portugal put it: “These fossil fuel subsidy estimates are shocking, Energy prices remain woefully below levels that reflect their true costs.”

Article written by:
Itai Lahat
Author
Current Map: Our coverage
extractable coal, oil and gas, including most Canadian tar sands, all Arctic oil and gas and much potential shale gas, cannot be exploited if the global temperature rise is to be kept under the 2C.
A Tar Sand mine in Canada
The absurd is of course that governments are supporting findings of new reserves of oil, gas and coal, with large and generous energy subsidies for fossil fuel companies.

Related & recommended articles

Signup for our monthly newsletter
The Best Picks from Our Editors
Send