$5.4t - The Real Cost Of Fossil Fuel Subsides - IMF Report

[Joseph C.]

http://www.theguardian.com/environment/2015/may/18/fossil-fuel-companies-getting-10m-a-minute-in-subsidies-says-imf?CMP=share_btn_tw

Fossil fuels subsidised by $10m a minute, says IMF
‘Shocking’ revelation finds $5.3tn subsidy estimate for 2015 is greater than the total health spending of all the world’s governments
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Why we need to keep fossil fuels in the ground
Damian Carrington
@dpcarrington
Monday 18 May 2015 14.30 BST Last modified on Tuesday 19 May 2015 11.14 BST
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Fossil fuel companies are benefitting from global subsidies of $5.3tn (£3.4tn) a year, equivalent to $10m a minute every day, according to a startling new estimate by the International Monetary Fund.

The IMF calls the revelation “shocking” and says the figure is an “extremely robust” estimate of the true cost of fossil fuels. The $5.3tn subsidy estimated for 2015 is greater than the total health spending of all the world’s governments.

The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas. These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change.


US taxpayers subsidising world's biggest fossil fuel companies
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Nicholas Stern, an eminent climate economist at the London School of Economics, said: “This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”

Lord Stern said that even the IMF’s vast subsidy figure was a significant underestimate: “A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.”

The IMF, one of the world’s most respected financial institutions, said that ending subsidies for fossil fuels would cut global carbon emissions by 20%. That would be a giant step towards taming global warming, an issue on which the world has made little progress to date.

Ending the subsidies would also slash the number of premature deaths from outdoor air pollution by 50% – about 1.6 million lives a year.

Furthermore, the IMF said the resources freed by ending fossil fuel subsidies could be an economic “game-changer” for many countries, by driving economic growth and poverty reduction through greater investment in infrastructure, health and education and also by cutting taxes that restrict growth.


Another consequence would be that the need for subsidies for renewable energy – a relatively tiny $120bn a year – would also disappear, if fossil fuel prices reflected the full cost of their impacts.

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“These [fossil fuel subsidy] estimates are shocking,” said Vitor Gaspar, the IMF’s head of fiscal affairs and former finance minister of Portugal. “Energy prices remain woefully below levels that reflect their true costs.”

David Coady, the IMF official in charge of the report, said: “When the [$5.3tn] number came out at first, we thought we had better double check this!” But the broad picture of huge global subsidies was “extremely robust”, he said. “It is the true cost associated with fossil fuel subsidies.”

The IMF estimate of $5.3tn in fossil fuel subsidies represents 6.5% of global GDP. Just over half the figure is the money governments are forced to spend treating the victims of air pollution and the income lost because of ill health and premature deaths. The figure is higher than a 2013 IMF estimate because new data from the World Health Organisation shows the harm caused by air pollution to be much higher than thought.

Coal is the dirtiest fuel in terms of both local air pollution and climate-warming carbon emissions and is therefore the greatest beneficiary of the subsidies, with just over half the total. Oil, heavily used in transport, gets about a third of the subsidy and gas the rest.

The biggest single source of air pollution is coal-fired power stations and China, with its large population and heavy reliance on coal power, provides $2.3tn of the annual subsidies. The next biggest fossil fuel subsidies are in the US ($700bn), Russia ($335bn), India ($277bn) and Japan ($157bn), with the European Union collectively allowing $330bn in subsidies to fossil fuels.


The costs resulting from the climate change driven by fossil fuel emissions account for subsidies of $1.27tn a year, about a quarter, of the IMF’s total. The IMF calculated this cost using an official US government estimate of $42 a tonne of CO2 (in 2015 dollars), a price “very likely to underestimate” the true cost, according to the UN’s Intergovernmental Panel on Climate Change.

The direct subsidising of fuel for consumers, by government discounts on diesel and other fuels, account for just 6% of the IMF’s total. Other local factors, such as reduced sales taxes on fossil fuels and the cost of traffic congestion and accidents, make up the rest. The IMF says traffic costs are included because increased fuel prices would be the most direct way to reduce them.

Christiana Figueres, the UN’s climate change chief charged with delivering a deal to tackle global warming at a crunch summit in December, said: “The IMF provides five trillion reasons for acting on fossil fuel subsidies. Protecting the poor and the vulnerable is crucial to the phasing down of these subsidies, but the multiple economic, social and environmental benefits are long and legion.”


Barack Obama and the G20 nations called for an end to fossil fuel subsidies in 2009, but little progress had been made until oil prices fell in 2014. In April, the president of the World Bank, Jim Yong Kim, told the Guardian that it was crazy that governments were still driving the use of coal, oil and gas by providing subsidies. “We need to get rid of fossil fuel subsidies now,” he said.

Reform of the subsidies would increase energy costs but Kim and the IMF both noted that existing fossil fuel subsidies overwhelmingly go to the rich, with the wealthiest 20% of people getting six times as much as the poorest 20% in low and middle-income countries. Gaspar said that with oil and coal prices currently low, there was a “golden opportunity” to phase out subsidies and use the increased tax revenues to reduce poverty through investment and to provide better targeted support.

Subsidy reforms are beginning in dozens of countries including Egypt, Indonesia, Mexico, Morocco and Thailand. In India, subsidies for diesel ended in October 2014. “People said it would not be possible to do that,” noted Coady. Coal use has also begun to fall in China for the first time this century.

On renewable energy, Coady said: “If we get the pricing of fossil fuels right, the argument for subsidies for renewable energy will disappear. Renewable energy would all of a sudden become a much more attractive option.”

Shelagh Whitley, a subsidies expert at the Overseas Development Institute, said: “The IMF report is yet another reminder that governments around the world are propping up a century-old energy model. Compounding the issue, our research shows that many of the energy subsidies highlighted by the IMF go toward finding new reserves of oil, gas and coal, which we know must be left in the ground if we are to avoid catastrophic, irreversible climate change.”

Developing the international cooperation needed to tackle climate change has proved challenging but a key message from the IMF’s work, according to Gaspar, is that each nation will directly benefit from tackling its own fossil fuel subsidies. “The icing on the cake is that the benefits from subsidy reform – for example, from reduced pollution – would overwhelmingly accrue to local populations,” he said.

“By acting local, and in their own best interest, [nations] can contribute significantly to the solution of a global challenge,” said Gaspar. “The path forward is clear: act local, solve global.”

Actual report:
http://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf

 

[Punx0r]

Hmm.

I was expecting a lot from the title but was sorely disappointed. The summary article is terrible: After reading it I had almost no idea what the report was actually about. Reading the report abstract and introduction was better, but still foggy.

The word "subsidy" seems to have been liberally scattered throughout, but without being defined. One moment it's talking about diesel fuel below market value and government support of "big energy" and I thought "ah, yes, this is what I was hoping to read about", but then there's no substantiation and the author switches to talking about the cost of property damage from floods possibly caused by global warming and the "cost" of road congestion, implying these are subsidies. The flooding is tenuous, the congestion is ridiculous, as though a delivery truck powered by renewable energy doesn't get delayed due to urban traffic.

I thought I might be informed that the upfront price advantage of fossil fuels over renewable was an illusion created by direct government finanical subsidies/tax breaks for consumer fuel, energy or by supporting the energy industry. That information might well be included in the report, but it's lost under the scramble to create the highest possible headline cost by including controversial n'th order possible effects of fossil fuel usage.

Thanks for brining it up, Joseph, it's definitely an interesting subject, I was just disappointed by the reporting!

 

[Joseph C.]

I found the report very confusing too but to be fair it is just a working paper. The full thing will be published later.

The bit that interested me the most was this:

'"While externality cost accounts for the bulk of the post-tax energy subsidies, at more than 80 percent in both 2013 and 2015, a detailed examination reveals that about three-fourths of these subsidies are related to local environmental damages and only about a quarter are due to global warming effect of CO2 emissions. This suggests that most of the environmental benefits from energy subsidy reform would accrue to the local population. !"

Though it isn't exactly clear I worked it out that local pollution is about 72 per cent of the subsidy with global warming comprising to 19 per cent after you take into account the pre-tax subsidies.

If that's the percentage they have attributed to global warming then I can see why the experts believe that the figure is far too low.

 

[Joseph C.]

Things just got very serious. It seems the world is finally growing up.

Beyond Coal are taking care of the United States. It would be nice if the oil companies were given the same treatment. A nicer bunch of lads you couldn't meet. I hope that kidnapped Colombian union worker destroys BP in court.

http://www.telegraph.co.uk/finance/economics/11633745/Fossil-industry-faces-a-perfect-political-and-technological-storm.html

Fossil industry faces a perfect political and technological storm
The IMF says we can no longer afford the economic wastage of fossil fuels, turning the green energy debate upside down as world leaders plan a binding climate deal in Paris

The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero.

The International Monetary Fund has let off the first thunder-clap. An astonishing report - blandly titled "How Large Are Global Energy Subsidies" - alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP.

This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation - also on cue - has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

The killer point is that this architecture of subsidy is a "drag on economic growth" as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer - and more dynamic - if the burning of fossils was priced properly.

• Big banks flag dangers of financial bubble in oil and commodities
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This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison.

The British electricity group SSE (ex Scottish and Southern Energy) is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal "has a limited role in the future".

The IMF bases its analysis on the work Arthur Pigou, the early 20th Century economist who advocated taxes to stop investors keeping all the profit while dumping the costs on the rest of society.

The Fund has set off a storm of protest. Subsidies are not quite the same as costs. Oil veterans retort that they have been paying 'social' taxes for a long time.
But whether or not you agree with the IMF’s forensic accounting the publication of such claims by the world's premier financial body is itself a striking fact. The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

It is becoming clearer that last year's sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance. At a single stroke it defused the 'North-South' conflict that has bedevilled climate policy and that caused the collapse of the Copenhagen talks in 2009.
Todd Stern, the chief US climate negotiator, said the chemistry is radically different today as sherpas prepare for the COPS 21 summit in Paris this December. "The two 800-pound gorillas are working together," he said.

Mr Stern claims that a constellation of states responsible for 60pc of global CO2 emissions are "already on board" for a binding deal, aimed at limiting the rise in carbon to 450 particles per million (ppm) and capping the rise in temperature to 2C degrees above pre-industrial levels by the end of the century. Climate scientists warn that we are currently on course for 4C degrees.

Some countries have been startlingly bold. Mexico has vowed to cut gases by 40pc within fifteen years - and Black Carbon by 70pc - if there is a binding accord. Gabon has promised to cut emissions to 62pc below the current trend path within a decade. The hold-outs are a diminishing alliance, struggling to make a moral counter-argument.
China has of course gone green with the zeal of the converted. "We are going to punish any violators who destroy the environment with an iron hand," said president Xi Jinping in March.

Two coal-powered stations were shut down in Beijing that month. The last will be mothballed next year. Deutsche Bank expects China's coal use to peak as soon as 2016, an unthinkable prospect five years ago.

The Communist Party knows its own survival is at stake. Anti-smog protests are spreading in the big cities, a political mass movement in waiting. "Under the Dome", a documentary on the country's toxic air and water, racked up over 100 million views on the internet within 24 hours two months ago. Beijing's censors suppressed it in panic.

Mr Xi promises to cap total CO2 emission by 2030, building 1000 gigawatts (GW) of solar, wind, and nuclear power in fifteen years. His country already has more wind power (115 GW) installed than Britain's entire energy system. It plans to add another 22 GW this year - equal to 15 nuclear reactors - building hundreds of miles of turbines across the North China steppe.

The International Energy Agency says that two-thirds of all fossil fuel reserves booked by global companies can never be burned if the world reaches a 2C accord in Paris. The assets will be worthless.

The carbon pricing regime that must ineluctably follow any such accord - even if phased in gradually - would surely call into question a raft of deep-water drilling projects, and as well as the vast Kashagan filed in the Caspian where break-even costs have risen to $100 a barrel. The North Sea industry would go into run-off.

A report by University College London said the Arctic would never be developed under a 2C degree policy. Over 75pc of Canada's oil would have to stay in the ground, as would 95pc of coal reserves in the US, Russia, and the Middle East, unless there are radical advances in carbon capture and storage.
The Bank of England has launched an enquiry to determine how much of the $5.5 trillion invested in fossil fuel exploration and development over the last six years is really viable, and whether it could become the new ‘subprime’ for the global financial system. This probe has now spread to the whole G20.

Carbon Tracker estimates that $1.1 trillion of investment has gone on ventures that will require oil prices above $95 a barrel over the next decade to break even.
The big oil producers deny that they will be sitting on "stranded assets" under a 2C degree policy. Exxon insists that all its reserves will be needed - and much more besides - to meet rising global energy demand. Yet these companies cannot all be right. It is mathematically impossible.

Jeremy Leggett, the chairman of Carbon Tracker, said Exxon is "placing a bet" that there will be no change in CO2 policy. "It asks its investors to be assured that there is zero risk – precisely zero risk," he said.

A far-reaching climate deal would have been impossible a decade ago. There was little on the horizon to replace fossil fuel. This has suddenly changed.
The advances in the cost and efficiency solar power are by now well-known. The US Solar Energy Industries Association (SEIA) says the average prices of photovoltaic modules dropped from $8 a watt in 2007 to $2.70 last year.

The new generation of cells cost around $0.80 a watt. First Solar is already producing modules for $0.40. Its commercial technology can capture 21.5pc of the sun's energy.
In China, Wuxi Suntech Power claims the 'levelized' cost of electricity from solar modules will match the country's coal-powered stations as soon as next year.
A new report by the IEA says utility-scale solar is already operating at plants in Chile and Mexico, selling into the spot market without subsidies. Developers in the United Arab Emirates have signed contracts to deliver electricity from solar projects for as little as $59 per megawatt hour, matching the cheapest hydropower.

Less known is that the cost of battery storage is also falling fast. We are moving much closer to the day when it will be cheaper for those in low or mid latitudes to store energy when the sun is shining and release it later, than to draw power from the grid.
The IEA estimates that the cost of a lithium-ion battery for grid-scale storage has fallen by more than three-quarters since 2008. The batteries last over three times as long.

Tesla's Elon Musk is jumping in with his usual bravado, vowing to liberate consumers from the grid and transform the "entire energy infrastructure of the world".
His Powerwall rechargeable battery can clip on a garage wall and will retail for $3,000 to $3,500 (before installation costs), far lower than anything on the market.
• Can Elon Musk and Tesla save the mining industry?
• Inside the crazy world of Elon Musk

This is surely just the beginning. The world's scientific superpower is now throwing itself into the fight with gusto, conducting over 220 research projects into various forms of battery storage. Harvard University is working on an organic flow-battery - using quinones from rhubarb - that aims to cut costs by two thirds in three years and end reliance on rare earth minerals.

With luck, we will overcome the curse of solar intermittency before the end of the decade. Mass production will follow by the mid-2020s. The switch to solar will by then be unstoppable.

Fossils fuels are caught in a pincer squeeze, threatened with a 'Pigouvian' climate tax just at the moment when the upstart technologies are coming of age.
Advocates of green energy must restrain their Schadenfreude. Coal drove the industrial revolution. Cheap energy from oil and gas has lifted billions of people out of poverty.

Shell, BP, Exxon, Chevron, and their earlier incarnations, have done mankind a service, carrying out their work diligently in broad accord with the political consensus of an earlier time.

The industry deserves a 'prosperity medal', and an honourable valediction

 

[arkmundi]

Its called corporate welfare and we've known for a long-time - no need for a "special report", though its welcome to shine more light on the infamy of it all. Politics is the art of taxing and not-taxing for the right and/or wrong people. When corporations rule, what's not taxed are their interests, shifting the burden to the 99% increasing poor people. Let's also call entitlements unprivileged welfare and seek to cut across the board, aiming to eliminate completely. That only serves the 99% increasingly poor people and who needs them when you own 60% of the wealth.

 

[liveforphysics]

If you don't have a 2nd planet earth standing by to inhabit, then it seems the cost of the current barbaric fossil fuel shame is much higher than something one can express in a dollar amount.

 

[dnmun]

i have watched several interviews of Elon and he keeps returning to his original idea of forming a continuously occupied colony on mars for humans to inhabit. he was total scifi geek, one interview he shows a connection with a young student about Heinlein but he keeps going back to how the things he is doing, with spaceX is to make interplanetary travel feasible by making it cheap enuff to be maintained continuously forever. so he strives to make the rockets capable of landing and taking off. building a greenhouse like colony on mars, everything he does is to create a cheap enuff solution to maintaining a mars colony that it is implemented as a safety valve or escape spot when earth is annihilated by some force he envisions from his sci fi past imo.

http://en.wikipedia.org/wiki/Robert_A._Heinlein

 

[Punx0r]

It will be very interesting to see if those proposed global political policies on temperature rises and CO2 emissions can actually be achieved.

 

[flathill]

The USA alone has spent trillions on pointless war ensuring the fossil fuels keeps flowing and then China ends up with the winning the bids for the supply contracts. Double fcuked. China also spends trillions indirectly and directly subsidizing fossil fuels but they are smarter than us because they use the USA to do the dirty work. They are still fcuking themselves as hard as the USA, at the end of the day. If you want to stop the inane killing machine ALL of us built to keep the world economy going, you already know what to do..........

The old machine is ready for the scrap pile

 

[arkmundi]

.. amen to that bro'... just that shift in consciousness that the military complex is a subsidy to keep territories open and sea lanes safe for the transport of the raw materials needed for industry to flourish, including oil, coal and natural gas... never mind that the military itself is big business.