Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer

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"Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer"

Between directly lowered prices, tax breaks, and the failure to properly price carbon, the world subsidized fossil fuel use by over $1.9 trillion in 2011 — or eight percent of global government revenues — according to a study released this week by the International Monetary Fund.

The biggest offender was by far the United States, clocking in at $502 billion. China came in second at $279 billion, and Russia was third at $116 billion. In fact, the problem is so significant in the U.S. that the IMF figures correcting it will require new fees, levies, or taxes totaling over $500 billion a year, or more than 3 percent of the economy.

The most significant finding is that most of the problem — a little over $1 trillion worth — is the failure to properly price carbon pollution. Global warming is the ultimate example of a “negative externality” — a market failure in which one market actor enjoys the benefits of an exchange while another actor pays the costs.

When we burn gasoline to power our cars or coal-fired electricity to run our homes, we enjoy the benefits of that energy use. But someone else — a farmer facing increased drought, coastal populations facing rising seas, or the global poor facing food supply disruptions — shoulders the burden of the added carbon pollution we’re dumping into the atmosphere. It’s the global ecological equivalent of tapping into your neighbor’s electrical wiring so that they wind up paying your utility bill.

The world’s advanced economies consume huge levels of fossil fuels, so the failure to properly build pollution costs into the consumer price of fossil fuel use — through a carbon tax or cap-and-trade-style system, or some other policy — is what makes these economic giants the biggest contributors to worldwide fossil fuel subsidies. Emerging and developing economies in Asia (which mainly means China) come in a decent second. “Pre-tax” subsidies, which are breaks built into the tax code along with other policies, contributed another $480 billion, mostly from countries in the Middle East and North Africa. The pre-tax subsidies of the advanced countries were negligible.

Finally, lots of countries have a national consumption tax called a VAT (or value added tax), and often offer breaks through it for energy purchases. The IMF had to calculate those separately for methodological reasons, and found they contributed several hundred billion dollars more, again largely from the advanced countries.

It’s worth noting that western Europe has an (admittedly troubled) carbon pollution reduction program, so the big externality subsidy created by the advanced economies can likely be blamed mostly on the United States.

In calculating the value of the externalities subsidy, the IMF assumed the global warming damages of carbon emissions at $25 per ton. They then went through the policies of various countries to see who is and isn’t making an attempt to work that price back in through taxation, and to what extent. But the report notes that various studies have pegged the price as high as $85 per ton — and other studies have put it much higher than that — in which case the size of the externality subsidy would be much larger. Beyond global warming, the IMF also attempted to account for other externalities, particularly the pollution and health effects of coal burning.

All told, the analysis found that eliminating all externality subsidies entirely would reduce carbon dioxide emissions as much as 13 percent, along with having lots of positive ripple effects by reducing fossil fuel demand and increasing investment and jobs in clean energy.

As for pre-tax” subsidies, they run the gamut from actual tax breaks for purchasing energy, to entire countries that, because they’re big oil exporters, sell petroleum to their own citizens at artificially low prices. The IMF compared the international price for petroleum products (adjusted for transport and retail costs) to the domestic consumer price in 176 countries between 2000 and 2011. The gap between the two was the effect of the subsidies. They did the same for natural gas, using 37 countries, and for coal, using 39 countries, between 2007 and 2011. Various other methods were used to fill in the gaps and do the same for electricity prices.

All told, these policies subsidized fossil fuels to the tune of $480 billion in 2011. Countries in the Middle East and North Africa contributed nearly half of that, with Central and Eastern Europe and the emerging and developing countries in Asia making up most of the rest.

What’s especially damaging is that a lot of the major contributors here spend more on pre-tax subsidies to fossil fuels, as a share of their economy, than they spend on their public health systems or public education. Brad Plumer at the Washington Post notes that Egypt “regularly spends up to 8 percent of its GDP subsidizing fossil fuels – more than it spends on education and public health combined – while running budget deficits of around … 8 percent of GDP.” Since many of these countries are developing with large impoverished populations, that kind of crowding out of public health spending and investments is a big deal.

The IMF also calculated that if pre-tax subsidies in all non-OECD countries were phased out, prices for crude oil, natural gas, and coal would drop 8 percent, 13 percent, and one percent in 2050, respectively. Removing all pre-tax subsidies worldwide would reduce global greenhouse gas emissions by as much as two percent.

One last thing to note is how this problem plays out in terms of global inequality. The IMF found that most of these subsidies benefit the upper class: In low and middle income countries, the richest 20 percent of households captured 43 percent of the subsidy benefits, on average. For gasoline subsidies specifically, they captured a whopping 61 percent.

That doesn’t mean eliminating these subsidies won’t hurt poorer households. Because their incomes are so much lower, losing those subsidies can take a significant bite out of their resources, even if the share of the benefits they’re getting is a small portion of the total value of those subsidies. What it does mean is that these countries could help the poor much more efficiently by eliminating the energy subsidies and then just providing direct assistance to people in need.

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18 Responses to Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer

  1. prokaryotes says:

    USA is hijacked by dirty energy.

    • Mulga Mumblebrain says:

      Not so violent. Dirty energy just bought the officers and crew, and the passengers, the vast majority trapped in ‘steerage’, are just ballast.

    • Mark E says:

      No it’s not.

      We’re hijacked by growth-addiction. Our use of fossil fuels is a symptom, not the real problem. The article absurdly says

      “The world’s advanced economies consume huge levels of fossil fuels…” (italics supplied)

      At a shallow pass this is certainly true. But go deeper. We consume huge amounts of everything else, too, and that will still be the case even if we go entirely carbon-free.

      That’s why characterizing the most industrialized economies as “advanced” is absurd. These economies are utterly addicted to the delusion of nonstop economic growth. *Nothing* grows forever!

      Where one is in such denial about a fatal illness that they put all of their resources into making the illness worse, it is absurd to characterize that behavior as “advanced”.

  2. Liz Calkins says:

    This is why it drives me crazy when people whine that renewable energy is more expensive than fossil fuels. Well, no kidding, ya dips, if renewable energy got this much subsidization, it would be cheap too.

    • Mulga Mumblebrain says:

      People in the USA are obsessed by expense because their standard of living has been eroded by the parasite castes and tribes over the last forty years. They are also mired in debt servitude, so every penny counts. It’s a clever policy, really.

  3. Mike Roddy says:

    The United States is a petro state, just like Saudi Arabia, Venezuela, and Russia. These kinds of countries tend to concentrate power at the top. Our head of state is going to have to oppose the fossil fuel companies if the earth is going to be salvaged.

    Both parties have been controlled, keeping that from happening. We await a leader who can break through.

  4. Paul Magnus says:

    Its also the worlds bigest military subsidizer…

    720 billion compared to all the rest of the world at
    650 billion.

    Does something seem very wrong here. Is the US really civilized?

  5. Michelle M says:

    I keep hearing people say, “Whatever we do is useless because China is worse than we are.” Now we know that’s not so! Even with their huge population.

    • Mark E says:

      It’s worse than that…. A huge slice of China’s fossil fuel consumption is really just being burned to make stuff for us…. so that proportion of the their total subsidies should go in the USA column also.

  6. Dick Smith says:

    When you say $25/ton of carbon emissions I assume you mean per ton of CO2 (which is $91.75/ton of carbon coming out of the ground). Next time please specify.

  7. I wouldn’t call the lack of a societal cost of carbon a subsidy (externalities and subsidies are distinct concepts in economics). It muddies the clarity of what’s being discussed. Instead, it’s best to state clearly that wind power is already cheaper than coal power in the US when you consider all the societal costs (not just carbon but also other externalities, as well as the backup costs for wind). It is simply wrong to say coal is cheaper. Better not to agree to this false framing. For data on coal in particular, see

    Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus. 2011. “Environmental Accounting for Pollution in the United States Economy.” American Economic Review vol. 101, no. 5. August. pp. 1649–1675. [http://nordhaus.econ.yale.edu/documents/EnvAccount_MMN_AER0811.pdf]

    Epstein, Paul R., Jonathan J. Buonocore, Kevin Eckerle, Michael Hendryx, Benjamin M. Stout Iii, Richard Heinberg, Richard W. Clapp, Beverly May, Nancy L. Reinhart, Melissa M. Ahern, Samir K. Doshi, and Leslie Glustrom. 2011. “Full cost accounting for the life cycle of coal.” Annals of the New York Academy of Sciences. vol. 1219, no. 1. February 17. pp. 73-98. [http://dx.doi.org/10.1111/j.1749-6632.2010.05890.x]

  8. Leif says:

    It behooves all to put those costs in perspective. A billion dollars is ~$3.00 for every man,woman,and child in the Nation. Subtract those that are too young, old, poor or rich to pay taxes and that would compute to at least $5.00/taxpayer for each billion dollars in the US population. Using the above 502 billion in subsidies and your taxpayer share is ~$2,500.
    Clearly even the poor and old share some of that cost because they buy fuel but by the same token the rich often get to deduct their share.
    Why do Progressives acquiesce to this public funding of the ecocide of the Planet? The GOP don’t fund abortion… There is precedent.

  9. Mark A. York says:

    And why does such a profitable “free-Market” industry need help from taxpayers, of which they, the oil industry are exempted? Well, see just how far industry manipulators will go in my new novel, Heat Wave, free this week.

    http://www.amazon.com/dp/B00BLMXX1O