IMF estimates global fossil fuel subsidies worth US$6tn

Out-Law News | 01 Oct 2021 | 12:51 pm | 2 min. read

The value of fossil fuel subsidies globally was about US$6 trillion in 2020, according to International Monetary Fund (IMF) research.

Of that figure, 70% reflects undercharging for environmental costs, IMF managing director Kristalina Georgieva told a UN energy summit. The IMF had estimated the cost of global fossil fuel subsidies as US$5.2tn in 2017, according to Reuters.

Last week UN secretary-general Antonio Guterres said the world must reduce greenhouse gas emissions by 45% in 2030 from 2010 levels and called for quadrupling solar and wind capacity by then, which is “part of a push to triple investments on renewable energy and energy efficiency to US$5tn per year”.

Guterres called on authorities to gradually remove subsidies on fossil fuel production and "put a price on carbon”.

Yeap John

John Yeap

Consultant

Any move to decarbonise must take into account the cost impact to society, and there are arguments for viewing social cost in the broadest context to include health and environmental considerations

John Yeap of Pinsent Masons, the law firm behind Out-Law, said: “Price subsidisation continues in much of the world, including in Asia, because of issues around affordability.  Any move to decarbonise must therefore take into account the cost impact to society, and there are arguments for viewing social cost in the broadest context to include health and environmental considerations.”

“Furthermore, there will be social justice issues around just transition to be considered. Sunset industries invariably involve the need for re-deploying or retraining employees in the industry. All these factors will be at the forefront of policy makers’ minds as they consider decarbonisation and the related issue of fossil subsidies,” he said.

A number of Asian countries have recently committed to zero carbon targets and announced related renewable policies.

China in September announced it would no longer build new coal-fired plants overseas, and would instead support developing countries to move into renewable energy. The country pledged it would reach carbon emission peak by 2030 and carbon neutrality by 2060.

In July, Japan set a 60% target for renewable energy by 2030 and its cabinet approved budget request guidelines for 2022, setting aside ¥4.4 trillion yen (US$40 billion) for policies such as carbon reduction under Japan’s green growth strategy. The country aims to become carbon-neutral by 2050. In April it strengthened the 2030 emissions reduction target to cut emissions by 46% by 2030 from 2013.

Vietnam plans to double its wind generation by 2030 under its national power development plan VIII. the country recently said it would start importing liquified natural gas (LNG) in 2022 as part of its plan to lower carbon emissions.

In May, Indonesia's state-owned electricity distributor Perusahaan Listrik Negara (PLN) pledged to stop building coal plants by 2023 after finishing the 35 gigawatts (GW)-worth of projects it had in the pipeline. In August, the country set its goal for achieving net zero emissions by 2060 or earlier.

In July, Thailand’s state-owned Electricity Generating Authority (EGAT) said it would replace its two proposed coal-fired power plants with a Bt34bn (US$1.03bn) gas-fired complex. In the following month, the country’s energy regulator the Energy Regulatory Commission (ERC) said it would relax restrictions on the independent importing of LNG, ending national oil and gas conglomerate PTT’s control of much of the market.