While 1% of Global GDP Would Be Enough to Fix Climate Change, IMF Says that World Spends 2.7% on Energy Subsidies Each Year

An add-on to the previous post. Prof. Schellnhuber last week showed IPCC results according to which the 2°C target can be met by investing 1% of global GPD annually if action starts before 2020. The International Monetary Fund recently published a report (summary presentation here) showing that the world is currently spending 2.7% of GPD on energy subsidies each year, a whopping US$ 1.9 trillion, most of which to the benefit of fossil fuels.

So lack of money rather seems not to be the issue. And according to the IMF just removing these subsidies could reduce CO2 emissions by 13%.

Update since some have highlighted the social dimension of energy subsidies:

The subsidies mostly don’t even achieve their purported objective, to help with energy access of the poor. According to the IMF, most benefits are captured by higher-income households. If you’re not even connected to the grid, you also don’t benefit from electricity subsidies. And since most subsidies go into controlling prices, the subsidy benefit is tied to the amount of energy used. On average, the richest 20% of households in low- and middle-income countries capture 43% of the benefits. So targeted social spending could achieve pro-poor benefits much more efficiently.

In addition, energy subsidies

“aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources”

The IMF report also goes into detail on how to do sensible subsidy reform including protections for poor households.

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