The world pays $5.3 trillion a year in hidden costs to keep burning fossil fuels, according to a new report from the International Monetary Fund (IMF). This is in addition to the $492 billion in direct subsidies offered by governments around the world — write-offs and write-downs and land-use loopholes.
In case these numbers are too big to imagine, $492 billion is enough to buy every taxable property in the city of Boston nearly five times over. Basically, governments buy oil, gas, and coal producers five Bostons every year.
It’s hard to imagine $5.3 trillion a year. It’s about a third of America’s gross domestic product. It’s enough to buy 55 Bostons. And it’s the amount of money it costs us, every year, to make up for the damage caused by fossil fuels.
Usually, subsidies refer to direct financial assistance from a government, but this report calls all public costs subsidies — not just direct assistance, but also the amount spent to deal with the damage of pollution by fossil fuels.
The crazy thing is that the bulk of this money spent to deal fossil fuel damage isn’t even for climate change mitigation, which makes up about 23 percent of the costs, the IMF found. (Arguably, devastating climate change will cost humanity much, much more than $5.3 trillion a year, but how do you put a price on Miami?)
Most of the expenditures calculated by the IMF represent “environmental change.” Specifically, local air pollution makes up 46 percent of the costs. This makes sense, when you consider that air pollution kills 7 million people per year, putting a considerable financial burden on worldwide healthcare systems.
The researchers point out that the local impacts means that correctly pricing energy would make financial sense to individual countries, and “therefore is beneficial even in the absence of globally coordinated action.” Correctly pricing energy means that users would have to pay at the pump or in their electricity bill or what their energy use actually costs.
It’s been shown that higher energy costs do change behaviors. For example, Hawaii, which has the highest electricity prices in the nation, is finding ways to go 100 percent renewable.
The IMF concluded that the best way to correctly price energy is through taxes.
“While there may be more efficient instruments than environmental taxes for addressing some of the externalities [hidden costs], energy taxes remain the most effective and practical tool until such other instruments become widely available and implemented,” the IMF said.
In the lead up to the United Nations’ climate negotiations in Paris this fall, how we curb carbon emissions is a burning question for many policymakers, and a carbon tax — widely seen as the most effective way to change behavior — is getting mixed backing.
A group of business leaders, including many oil and gas interests, have perhaps surprisingly come out in favor of a carbon tax.
“The call for carbon pricing is unanimous,” Gerard Mestrallet, CEO of the French energy company Engie, said at a conference in Paris this week, according to Bloomberg News. “It’s loud and clear. Carbon pricing is the right signal, the right tool.”
The New York Times editorial board also took the opportunity to call on Congress to raise the gas tax following the release of the IMF’s report, saying an increase would help save lives and protect the environment.
The IMF points out that with currently low fuel costs, there is an opportunity to raise taxes without putting economic pressure on consumers. But it’s unlikely that Congress will act on the issue anytime soon. Despite the recent introduction of a bill to create a national renewable portfolio standard, and the upcoming Clean Power Plan which seeks to limit carbon emissions from the electricity sector, there does not seem to be much political appetite to raise taxes on dirty fuels. In fact, Secretary of State John Kerry argued this week that private industry has to move first.
One way or another, the need to cut down pollution from energy sources is clear, according to the IMF’s report.
“In summary, environmental damages from energy subsidies are large, and energy subsidy reform through efficient energy pricing is urgently needed,” the report concludes.