Fossil fuel subsidies surge to record $7 trillion, says IMF

Governments around the world are spending more on subsidies than education, which accounts for 4.3 per cent of global income

Waheed Abbas

Published: Thu 24 Aug 2023, 6:31 PM

Last updated: Thu 24 Aug 2023, 6:46 PM

Fossil fuel subsidies surged to a record $7 trillion (Dh25.7 trillion) last year, accounting for 7.1 per cent of the global economy, as governments supported consumers and businesses during the global spike in energy prices caused by the Russia-Ukraine crisis and the economic recovery from the pandemic.

According to the latest figures released by International Monetary Fund (IMF) on Thursday, governments around the world are spending more on subsidies than education, which accounts for 4.3 per cent of global income.

Blamed for causing global warming, the fossil-fuel subsidies were given in oil, coal and natural gas. These finds come as the World Meteorological Organisation reported July as the hottest month on record.

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“Fossil-fuel subsidies rose by $2 trillion over the past two years as explicit subsidies more than doubled to $1.3 trillion,” IMF said in its latest update on fossil fuel subsidies, covering 170 countries of explicit and implicit subsidies.

Explicit subsidies occur when the retail price is below a fuel's supply cost while implicit subsidies arise when the government is unable to recover the costs it incurs in the provision of social and economic goods/ services.

“If governments removed explicit subsidies and imposed corrective taxes, fuel prices would increase. This would lead firms and households to consider environmental costs when making consumption and investment decisions. The result would be cutting global carbon-dioxide emissions significantly, cleaner air, less lung and heart disease, and more fiscal space for governments,” IMF said.

It estimated that scrapping explicit and implicit fossil-fuel subsidies would prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track toward reaching global warming targets.

IMF said the removal of explicit fuel subsidies and imposing corrective taxes such as a carbon tax would reduce global carbon dioxide (CO2) emissions by 43 per cent below ‘business as usual’ levels in 2030, which would be in line with keeping global warming to ‘well below’ 2oC and towards 1.5oC.

Going forward, the IMF said the composition of energy subsidies may change significantly.

“For example, the appropriate value on carbon emissions will likely rise as countries ramp up their mitigation efforts, while underpricing for air pollution may decline with policies to reduce local air emission rates. However, large overall fossil fuel subsidies will likely persist for the foreseeable future,” it said.

Top countries

Country Total subsidy ($ billion)

China 2,235

US 757

Russia 421

India 346

Japan 310

Saudi Arabia 253

Indonesia 194

Iran 163

South Korea 162

Turkey 152