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Monday, May 20, 2024

IMF: Fossil fuel subsidies hit $7T record

Fossil fuel subsidies hit a record $7 trillion (Dh25.7 trillion) last year, comprising 7.1% of the global economy. Governments extended these subsidies to support consumers and businesses due to the Russia-Ukraine crisis and post-pandemic economic recovery, as per the latest data from the International Monetary Fund (IMF).

This amount exceeded spending on education, which accounted for 4.3% of global income.

These subsidies, given in oil, coal, and natural gas, have been blamed for contributing to global warming. The increase amounts to $2 trillion over two years, with explicit subsidies more than doubling to $1.3 trillion. The World Meteorological Organization noted July as the hottest month on record.

Explicit subsidies involve retail prices lower than supply costs, while implicit subsidies arise when governments can’t recover their costs for providing goods and services. IMF suggests that eliminating these subsidies and implementing corrective taxes could lead to environmental cost considerations in consumption and investment decisions, potentially cutting carbon emissions, reducing diseases, and boosting fiscal resources.

The removal of both explicit and implicit fossil fuel subsidies could prevent 1.6 million premature deaths annually, generate $4.4 trillion in government revenue, and aid emissions reduction targets. IMF states that scrapping explicit subsidies and introducing measures like a carbon tax could slash global carbon dioxide emissions by 43% below projected levels in 2030, aligning with efforts to limit global warming to below 2°C and even closer to 1.5°C.

Looking ahead, the composition of energy subsidies could undergo significant changes as countries intensify their mitigation strategies and policies for pollution reduction. Nevertheless, substantial overall fossil fuel subsidies are expected to persist for the foreseeable future, according to IMF.

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