At a rate of $13 million every minute, fossil fuels are subsidised

In 2022, fossil fuels received unprecedented subsidies, reaching a staggering $13 million per minute, as revealed by the International Monetary Fund (IMF). Despite being a primary contributor to the climate crisis, oil, gas, and coal enjoyed a total of $7 trillion in subsidies, equivalent to 7% of global GDP—nearly double the expenditure on education worldwide. Though nations have long pledged to phase out these subsidies to accurately reflect the environmental costs of fossil fuels, progress has been limited.

The IMF's analysis disclosed that explicit subsidies, directly lowering fuel prices for consumers, doubled in 2022 due to global responses to heightened energy costs resulting from Russia's conflict in Ukraine. The benefits of these subsidies disproportionately favoured affluent households over poorer ones. Implicit subsidies, representing the substantial costs associated with climate change and air pollution caused by fossil fuels, constituted 80% of the total subsidies. The IMF emphasizes that ending these subsidies should be at the forefront of climate action, asserting that such a move could align the world to limit global warming to below 2°C. Additionally, this action could prevent 1.6 million annual air pollution-related deaths and generate trillions of dollars in increased government revenues. While the IMF recognizes the political challenges of subsidy reform, it suggests that well-designed policies, particularly those supporting poorer households and coordinated internationally, could be effective.

The urgency of addressing fossil fuel subsidies is underscored by the ongoing climate crisis, manifested in heatwaves, wildfires, and floods across the Americas, Europe, and Asia. Efforts to combat global warming must prioritize the reduction of fossil fuel subsidies in the coming years, ideally through mechanisms like carbon pricing. Revenues generated from reforms should be directed towards compensating impoverished and vulnerable households. Despite the G20 nations' 2009 commitment to phasing out inefficient fossil fuel subsidies, they paradoxically poured a record $1.4 trillion into such subsidies in 2022, as estimated by the International Institute for Sustainable Development. The World Bank has highlighted the combined environmental impact of fossil fuel and agricultural subsidies, reaching a staggering $12 trillion annually.

While some countries like Canada and Nigeria have taken steps to eliminate certain fossil fuel subsidies, past removals have faced reversals following public protests. The IMF's analysis further identified that petrol and oil products constituted half of explicit subsidies, with coal and fossil gas accounting for 30% and 20%, respectively. Notably, China, the US, Russia, the EU, and India were identified as the largest subsidizers of fossil fuels. The IMF researchers posit that if higher climate damage costs were considered, the total fossil fuel subsidies in 2022 could have exceeded $12 trillion. Their analysis suggests that ending these subsidies could lead to a significant 34% reduction in emissions by 2030 compared to 2019 levels, contributing substantially to the required 43% cut to keep global heating below 1.5°C. To navigate potential political resistance, the researchers advocate for gradual phasing in of subsidy reform policies, financial support for low-income individuals, and productive utilization of increased revenues. The World Bank underscores that while subsidy cuts necessitate challenging policy reforms, the costs of inaction are far greater.