IMF Reports Record-breaking $7tn in Global Fossil Fuel Subsidies and Costs for 2022

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In 2022, global fossil fuel subsidies reached a record high of $7tn, driven by governments’ efforts to protect consumers from rising energy prices resulting from Russia’s invasion of Ukraine, according to the IMF.

According to the IMF study, subsidies for coal, oil, and natural gas in 2022 accounted for 7.1% of global GDP. This amount exceeded the spending on education and accounted for two-thirds of healthcare spending.

The IMF’s calculations included implicit subsidies, which result from governments not charging the full environmental costs associated with burning fossil fuels. These costs include air pollution and global warming.

The majority of subsidies included in the study fell into this category, and it is expected that their value will increase as developing countries increase their fossil fuel consumption.

The IMF’s report comes at a time when the world is experiencing the highest average monthly global temperatures ever recorded. Scientists have determined that the burning of fossil fuels is primarily responsible for the global temperature rise of at least 1.1C during the industrial era.

“Explicit” subsidies, referring to consumers paying less than the supply costs of fossil fuels, tripled from $0.5tn in 2020 to $1.5tn in 2022, according to the IMF report.

The International Institute for Sustainable Development think-tank estimated G20 economies’ subsidies at $1.4tn, including state-owned enterprise investments and loans from public finance institutions. Another independent research report put the figure at $1.8tn.

However, the IMF report suggests that the increase in explicit subsidies is due to temporary government support measures that are expected to decrease over time.

The East Asia and Pacific region accounted for nearly half of global subsidies, with China being the largest subsidizer of fossil fuels, followed by the US, Russia, the European Union, and India.

G20 leaders committed to phasing out inefficient fossil fuel subsidies in 2009 and pledged to accelerate their efforts at the UN COP26 climate conference in Glasgow in 2021.

However, rising living costs and an energy crisis have led governments to implement energy price caps and fuel subsidies.

Climate experts and campaigners have been disappointed by world leaders’ actions leading up to this year’s UN COP28 conference in Dubai, where progress made by countries in cutting emissions under the 2015 Paris Agreement will be assessed.

Emissions need to be reduced by 43% by 2030 to limit global warming to the 1.5C threshold at which irreversible changes are expected. However, emissions have continued to rise each year.

In May, leaders of the G7 failed to set a deadline for phasing out coal without carbon capture. Given the full-scale Russian invasion of Ukraine, the G7 stated that temporarily supporting investment in the gas sector could be appropriate as a response to the resulting energy crisis.

In the G20 climate negotiations, China and Saudi Arabia were reported to have obstructed progress by refusing to discuss crucial issues such as greenhouse gas emissions targets.

This year has been the third-warmest on record and has the potential to surpass 2016 as the hottest. Extreme heatwaves and flooding have occurred in large parts of the US, Europe, and Asia, and scientists predict that these weather extremes will become more frequent and intense with each degree of warming.