The International Monetary Fund (IMF) has released a report titled “IMF Fossil Fuel Subsidies Data: 2023 Update,” revealing that leading world economic powers are collectively responsible for a significant share of global fossil fuel subsidies.
The report emphasizes that total global fossil fuel subsidies amounted to $7 trillion in 2022, equivalent to nearly 7.1 percent of the global Gross Domestic Product (GDP).
The report differentiates between explicit subsidies (undercharging for supply costs) and implicit subsidies (undercharging for environmental costs and forgone consumption taxes). It notes that explicit subsidies constitute 18 percent of the total, while implicit subsidies make up the remaining 82 percent.
Explicit subsidies, which have doubled since the previous assessment, reached $1.3 trillion in 2022 due to higher international fossil fuel prices.
However, much of this increase is attributed to temporary price support measures, and the report expects explicit subsidies to decline if international prices continue to decrease from their peak levels. Implicit subsidies are projected to rise, especially due to growing fuel consumption in emerging markets where local environmental costs are higher.
The report highlights that the differences between efficient prices and retail prices for fossil fuels are substantial, particularly for coal. Globally, around 80 percent of coal consumption was priced at less than half of its efficient level in 2022. Underpricing for local air pollution and global warming accounts for nearly 60 percent of global fossil fuel subsidies, while underpricing for supply costs and transportation externalities contributes another 35 percent.
By fuel product, undercharging for oil products accounts for almost half of the subsidy, followed by coal at 30 percent, and natural gas at nearly 20 percent. Geographically, East Asia and the Pacific region represent nearly half of the global subsidy.
China remains the largest subsidizer of fuels in absolute terms, followed by the US, Russia, EU, and India. The report emphasizes that comprehensive fossil fuel price reform, including the removal of explicit fuel subsidies and the imposition of corrective taxes like a carbon tax, could reduce global carbon dioxide (CO2) emissions by 43 percent below “business as usual” levels by 2030, resulting in a 34 percent reduction from 2019 levels.
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