By artificially lowering prices, subsidies drive wasteful energy consumption which increases local air pollution and congestion, while crowding out investment in renewables and energy efficiency. The sheer size of the subsidies is a significant drain on national budgets, diverting resources from other areas like health and education.
Every year, governments spend between US$160 and US$400 billion as fossil fuel subsidies for the production and use of coal, oil and gas. Payments to consumers, companies, tax breaks or other fiscal incentives are some of the ways governments subsidize fossil fuels, moving ever farther away from meeting the goals of the Paris Climate Agreement, writes UN Environment in its report. UN Environment is working with governments to collect internationally coherent data on fossil fuel subsidies that can help advance global efforts to address climate change.
“Understanding the size of existing fossil fuel subsidies is an important first step towards achieving reform,” says UN Environment fossil fuel subsidy expert Joy Kim. “You can’t manage what you can’t measure.” In contrast, the total financial support to renewable energy amounts to US$121 billion.
Although advocated as a measure to fight poverty, fossil fuel subsidies often do not reach the poorest households and instead tend to benefit wealthier segments of society more.
The International Monetary Fund estimates that removing fossil fuel subsidies and then taxing fossil fuels correctly (based on the cost borne to society through air pollution, carbon emissions and accidents) could lead to a decline in fossil-fuel related carbon emissions by over 20 per cent globally. Removing the subsidies would also reduce premature air pollution-related deaths by over 50 per cent and raise government revenue by US$2.9 trillion (3.6 per cent of global gross domestic product), it says.