The International Monetary Fund (IMF) released its estimate of global fossil fuel subsidies for 2015 at
$5.3 trillion—almost ten times higher than the International Energy Agency’s (IEA) calculation of $
548 billion for 2013.
(i] The difference is not the change of a 2-year span, but the methodology. The IEA uses a “price-gap” methodology, which is the difference between end-use prices and supply costs that include shipping costs, margins, and value-added taxes. In other words, the agency calculates subsidies that the governments pay their own citizens to enable them to buy energy more cheaply than the market price.
The IMF, on the other hand, includes in
its methodology externality costs that purportedly measure damages from emissions of carbon dioxide and local pollutants (e.g. sulfur dioxide and particular matter), traffic congestion, and accidents; plus a consumption tax that is assessed on both the supply cost and the externality cost.
[ii] These externality costs are not actual costs to the consumer or the government but costs that some analysts believe will pay for their theoretical projections of perceived damage of using fossil fuels. Thus, the IMF subsidies are made artificially higher than what is actually paid for the fossil fuels. The fundamental problem with such an approach is that the average person thinks “subsidy” refers to actual government funds or other advantages given to a particular producer; the fact that firms are allowed to emit greenhouse gases is not what most people have in mind by the term “subsidy.”
Comparison of Country Subsidies
Under the IMF methodology, China is alleged to have incurred a
$2.3 trillion subsidy for its fossil fuel use as it is the
world’s largest energy consumer and the world’s largest coal consumer.
[iii] This IMF subsidy estimate that includes externality costs is 110 times higher than the IEA calculated fossil fuel subsidy of
$21 billion for China for 2013.
IMF estimates 2015 fossil fuel subsidies for the United States at $699 billion, Russia at $355 billion, the European Union at $330 billion, India at $277 billion, and Japan at $157 billion.
[iv] The comparative values under the IEA methodology are $0 for the United States,
$46.5 billion for Russia, $0 for the European Union,
$47 billion for India, and $0 for Japan.
[v] In other words, IMF’s fossil fuel subsidies for the United States, the European Union, and Japan are composed entirely of externality costs and consumption taxes—not actual financial payments from consumers or governments.