Global Fossil Fuel Subsidies

This IMF paper updates estimates of fossil fuel subsidies, defined as fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations), for 191 countries. Globally, subsidies remained large at $4.7 trillion (6.3 percent of global GDP) in 2015 and are projected at $5.2 trillion (6.5 percent of GDP) in 2017. The largest subsidizers in 2015 were China ($1.4 trillion), United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies. Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.

Stranded asset risk in coal intensive South Africa

As renewable energy prices continue to fall below conventional electricity prices, the future demand for fossil fuels is dwindling. Investors around the world are limiting investments in that industry. Experts have estimated that fossil fuel assets worth between 1 and 4 trillion dollars may be stranded, depending on the stringency of the global climate action. South Africa, a coal intensive economy, is particularly at risk in the context of this impending global transition. This risk arises not just because of its coal export revenues but also because of its continued investments in domestic fossil fuel capacities. With the domestic imperative to shift to a low carbon economy, existing assets worth 31.2 billion dollars are at risk of being stranded. Studies estimate that planned future investments will put further assets worth 25 billion dollars at risk. Countries can avoid such risks through long term climate planning.

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