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IMF: Reform of the system could cut global carbon emissions by a total of 43 percent by 2030

As part of the international debate on a phase-out of fossil fuels, the International Monetary Fund (IMF) in Washington presented new figures on government subsidies for fossil fuels. In 2022, direct and indirect subsidies from taxpayers’ money for oil, coal and gas amounted to a total of seven trillion US dollars worldwide, or 7.1 percent of global economic output. According to the IMF working paper, a reform of the system could cut global carbon emissions by a total of 43 percent by 2030 and thus help meet the 2-degree limit of the Paris Agreement.
Like other IMF studies, the report examines direct and indirect subsidies for fossil fuels. A majority of the subsidies from state funds (82 percent) are “implicit” subsidies, because the ecological and medical consequences of fossil fuels are not attributed to the polluters, but are borne by the general public. “Explicit”, i.e. direct, price subsidies account for only 18 percent of the total amount.
Specifically:
  • Explicit subsidies surged between 2020 and 2022, from 0.5 to 1.3 trillion US dollars, following the price shock caused by the Ukraine war. However, the IMF expects these subsidies to fall again.
  • There is a large gap between “efficient” prices and market prices for fossil fuels. Efficient prices reflect the costs associated with fuels through their procurement, environmental damage and tax levies. More than 80 percent of the world’s coal is sold at less than half its efficient price.
  • A “full reform” of this system (removing all subsidies and imposing a carbon tax) would cut greenhouse gas emissions to levels approaching the Paris climate targets: Minus 43 percent by 2030, which comes close to “halving emissions by 2030,” which would make limiting global warming to 1.5 degrees by 2100 realistic. This would also prevent 1.6 million statistically calculated premature deaths annually due to air pollution from fossil fuels.
  • Even “second-best efficient combinations” (carbon price and local air emission regulations) would still yield a reduction of about 20 percent – and prevent about 1.2 million premature deaths each year.
  • 60 percent of the “underpricing,” i.e., prices that the IMF considers too low, relates to the uncharged damage caused by climate change and air pollution. 35 percent is due to uncharged damage to infrastructure, including roads and economic losses caused by traffic congestion and 5 percent is due to lost revenue for public coffers. The IMF’s calculations are based on a theoretical carbon price that starts at 60 US dollars per metric ton of CO2 in 2020 and increases by 1.5 US dollars every year. This is a moderate calculation, considering that the “social cost of carbon” in the USA, for example, is estimated at between 50 and just under 200 US dollars.
  • Reforming subsidies is “in countries’ own interest, even when excluding climate benefits.” Countries would then have revenues at their disposal, totaling 3.6 percent of global economic output. These could be used to reduce labor costs, fund “productive investments,” or reduce debt levels.
This article first appeared in Climate.Table, a product of Table.Media - Professional Briefings. Register for a free trial here.
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  • Christina Carlmark

    36 w

    This sounds almost too good to be true. Let's communicate this as a top solution to cut GHG emissions.

    7
    • Sarah Chabane

      37 w

      This is such an important topic that could help the whole world tackle climate change with massive impact, sadly it's almost completely silenced.

      • Johannes Luiga

        37 w

        To stop fossil fuel subsidies is a no brainer and has to be implemented as soon as possible

        9
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