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31 July 2023

Fossil Fuel Subsidies Soared to $1.3 Trillion in 2022, Reveals IMF Report

Despite repeated government pledges to reduce fossil fuel subsidies, a recent report by the International Monetary Fund (IMF) has revealed an alarming surge in these subsidies, reaching an all-time high of $1.3 trillion in the year 2022.

The IMF's report analyzed both explicit and implicit subsidies for fossil fuels across 170 countries. Explicit subsidies alone more than doubled since the previous assessment in 2020, skyrocketing from $500 billion to $1.3 trillion in 2022. Governments rushed to counter the inflationary impact of Russia’s invasion of Ukraine and the surge in demand stemming from the economic recovery following Covid-19. Explicit subsidies represent direct monetary support for fossil fuels, involving activities like regulated prices set below international levels and energy bill rebates.

The IMF also factored in implicit fossil fuel subsidies, encompassing costs such as undercharging for environmental expenses and failing to impose taxes on consumption. When considering these factors, the total subsidies ballooned to an astonishing $7 trillion in 2022, marking a $2 trillion increase compared to 2020.

These findings align with a separate report released by the International Institute for Sustainable Development (IISD), a Canadian think tank, which revealed that public funds allocated to explicit fossil fuel subsidies in G-20 countries alone surged to $1 trillion in 2022, more than quadrupling compared to the previous year.

These two reports underscore the stark disparity between nations’ professed commitments to reduce fossil fuel support and their actual actions. Despite commitments made in 2015 and reinforced at COP26 in 2021 to phase out fossil fuel subsidies, the implementation of these commitments has been lacking.

Christopher Beaton, a researcher specializing in sustainable energy consumption at IISD, remarked, “We are overflowing with government commitments to phase out support for fossil fuels, but there is a serious drought in implementation. During the last two years, at the international level, we have gone backwards.”

Reversing course on fossil fuel subsidies poses significant challenges for global efforts to limit global warming to within 1.5 degrees Celsius of pre-industrial levels. Even at the current 1.2 degrees Celsius of warming, the world faces increasingly severe heatwaves, disasters, and extreme weather events intensified by climate change. This July set a record as the hottest month ever recorded, amidst a summer marred by deadly wildfires, heatwaves, and floods.

Continued support for fossil fuels only exacerbates the volatility of the climate by increasing greenhouse gas emissions. Christopher Beaton noted, “Fossil fuel subsidies keep the prices low, which increases consumption, and they are encouraging new projects that would never otherwise take place.”

The IMF authors assert that eliminating explicit fuel subsidies and imposing taxes on environmental costs, including carbon dioxide and other air pollutants, could reduce global carbon dioxide emissions by 34 percent below 2019 levels by 2030.