That $5.2 trillion is more than the combined Gross Domestic Product of France and Germany and amounts to $164,890.91 of money wasted per second – worldwide – in a year, reports Earther.
The outrageous figure is equivalent to roughly 6.5 percent of global GDP and is up by half a trillion dollars from 2015, when global subsidies stood at $4.7 trillion, according to the IMF.
However, the IMF also points out that if governments had only accounted for these subsidies and priced fossil fuels at their “fully efficient levels” that year, then worldwide carbon emissions would have been 28 percent lower, and deaths due to toxic air pollution would have been 46 percent lower.
The staggering sum of money involved shows why failure to account for climate change, air pollution, and other impacts of fossil fuel extraction has been considered the “biggest market failure, ever.” You might even say this shows why the market probably won’t save us, either.
Pre-tax subsidies
The IMF defines “subsidies” as “fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations).” The IMF then breaks down subsidies into two major parts.
First, there are direct or pre-tax subsidies. These reflect the difference between what people pay for fuel and what it costs to produce. They include money that offset the costs consumers pay for, say gas or heating oil. Those totals are still quite high at more than $300 billion in 2017.
Still confused? The Atlantic gives us an example: “Exxon says it can break even selling a gallon of gas for $3.50, but the government might decide that the best price for gasoline is actually $2.50. If it provisions public funds to pay this discount, then we would call the resulting $1 a subsidy.”
So, if direct subsidies only amounted to about $300 billion in 2017, where in the world did the other $4.7 trillion comes from? This is where the IMF uses its broader definition of subsidies, figuring in a category called post-tax subsidies.
Post-tax subsidies
In other words, the IMF wanted to reflect the “differences between actual consumer fuel prices and how much consumers would pay if prices fully reflected supply costs plus the taxes needed to reflect environmental costs and revenue requirements.” Let’s look at post-tax subsidies.
Post-tax subsidies are hidden in the impacts of burning fossil fuels, and these subsidies are huge. We could discourse at great length on the effects of burning oil, gas, and coal. There are widespread health problems tied with air pollution and great disruption to the climate, plus, fossil fuels aren’t paying their fair share.
IMF used a calculation that is called the social cost of carbon. As part of this metric, the IMF study considered the number of ways economists have attempted to value the cost of CO2 emissions, and came up with a value of $40/ton for 2015 emissions, rising at 3 percent a year.
‘This is in line with what the Environmental Defense Fund has also suggested as the current social cost of carbon, but notes that many experts believe this underestimates the true costs of carbon pollution — perhaps severely, reports Electrek. Just keep in mind that current research says pricing CO2 emissions at $40 per ton isn’t high enough,
Digital Journal’s Take on the IMF report
In looking at the pre-tax subsidies, they are something we can do something about. They have “declined substantially” over the past decade, the IMF says, and in many cases, they are getting removed, as for example, with the increased closure of coal-fired power plants and the transition to electric vehicles.
However, it is the post-tax subsidies that should be the greatest concern to all of us. Most of these subsidies appear to be invisible, especially to fossil fuel interests and to the public in general. Actually, it is difficult to put an exact cost on the environmental damage and health risks associated with fossil fuel use.
The only way we will ever be able to quantify the impacts is when we stop depending on fossil fuels. Until that time comes, and I hope it does, we will continue to slowly kill ourselves with fossil fuels, and as the accompanying video points out, “This is a big f**king deal.”
