A comprehensive study of 191 nations, published by the International Monetary Fund in September 2021, found that globally the fossil fuel industry receives subsidies of $11 million per minute, the Guardian and Treehugger reported in October 2021. Fossil fuel companies received $5.9 trillion in subsidies in 2020, with support projected to rise to $6.4 trillion by 2025, according to the IMF report.
Some of these subsidies are direct, including government policies that reduce prices (representing 8 percent of total fossil fuel subsidies) and provide tax exemptions (6 percent). But the biggest benefits to fossil fuel companies include what the IMF report calculated as indirect subsidies, including lack of liability for the health costs of deadly air pollution (42 percent), damages caused by extreme weather events linked to global warming (29 percent), and costs resulting from traffic collisions and congestion (15 percent).
In effect, fossil fuel companies do not cover the damages their products cause, thereby artificially reducing the costs of fuels and leaving governments and taxpayers to pay the indirect costs. [Note: For one report on the deadly consequences of air pollution in the United States, much of which is driven by reliance on fossil fuels, see Lylla Younes, Ava Kofman, Al Shaw, Lisa Song, and Maya Miller, “Poison in the Air,” ProPublica, November 2, 2021.]
As Eduardo Garcia reported for Treehugger, when government taxes on fossil fuels produce inadequate revenues, the consequences include a combination of higher taxes in other areas, increased government deficits, and decreased spending on public goods.
Pricing fossil fuels to cover both their supply and environmental costs would result in what the IMF study called the “efficient price” for fossil fuels. However, as the IMF found, not one national government currently prices fossil fuels at their efficient price. Instead, an estimated 99 percent of coal, 52 percent of road diesel, 47 percent of natural gas, and 18 percent of gasoline are priced at less than half their efficient price.
These subsidies are not evenly distributed across the globe. Just five countries—the United States, Russia, India, China, and Japan—are responsible for two-thirds of global fossil fuel subsidies. In the United States, the IMF estimated that the US government provided $730 billion in direct and indirect subsidies to fossil fuel companies in 2020. According to a July 2021 study by the Stockholm Environment Institute and Earth Track, continued US subsidies and exemptions “could increase the profitability of new oil and gas fields by more than 50% over the next decade,” with nearly all of the subsidies serving to increase companies’ profits. If Congress were to stop providing tax breaks to the industry, the drilling of new oil wells in the US would decrease by about 25 percent, according to a September 2021 E&E News report citing an estimate by the industry’s American Exploration & Production Council.
The IMF study behind this independent reporting explained that “underpricing of fossil fuels is still pervasive across countries and is often substantial.” As the Guardian reported, ending fossil fuel subsidies would “prevent nearly a million deaths a year from dirty air and raise trillions of dollars for governments.”
“It’s critical that governments stop propping up an industry that is in decline,” Mike Coffin, a senior analyst at Carbon Tracker, told the Guardian. Necessary change “could start happening now, if not for government’s entanglement with the fossil fuels industry in so many major economies,” added Maria Pastukhova of E3G, a climate change think tank. In September 2021, Oil Change International announced that more than 200 civil society organizations from more than forty countries called on international leaders to end public finance for coal, oil, and gas. Laurie van der Burg of Oil Change International noted, “It’s an utter disgrace that rich countries are still spending more public money on fossil fuels than on climate [protection] finance.”
Eliminating fossil fuel subsidies could lead to higher energy prices and, ultimately, political protests and social unrest. But, as the Guardian and Treehugger each reported, the IMF recommended a “comprehensive strategy” to protect consumers—especially low-income households—impacted by rising energy costs, and workers in displaced industries. As Ipek Gençsü told the Guardian, public information campaigns would be essential to counter popular opposition to subsidy reforms. He said ending fossil fuel subsidies could allow governments to redistribute savings “in the form of healthcare, education and other social services.”
As of May 2022, no corporate news outlets had reported on the IMF’s report, though a few industry publications such as Power Technology have done so. In November 2021, the New York Times published an opinion piece focused on the claim by John Kerry, US special envoy for climate change, that government fossil fuel subsidies that artificially lower the price of coal, oil, and gas are “a definition of insanity.” But the Times’ coverage was framed as opinion, and the editorial did not address the significant indirect subsidies identified in the IMF study, as reported by the Guardian and Treehugger. In January 2022, CNN published an article that all but defended fossil fuel subsidies. CNN’s coverage emphasized the potential for unrest caused by rollbacks of government subsidies, citing “protests that occasionally turned violent.”
Damian Carrington, “Fossil Fuel Industry Gets Subsidies of $11M a Minute, IMF Finds,” The Guardian, October 6, 2021.
Eduardo Garcia, “Fossil Fuel Companies Receive $11 Million a Minute in Subsidies, New Report Reveals,” Treehugger, October 21, 2021.
Student Researcher: Annie Koruga (Ohlone College)
Faculty Evaluator: Robin Takahashi (Ohlone College)