In 2022, the International Monetary Fund (IMF) estimated that subsidies amounted to $270 billion in China, $129 billion in Saudi Arabia, $43 billion in Germany, $19 billion in the UK, $18 billion in France, and $3 billion in the US.
Although prices have decreased from last year’s peak, they remain higher than pre-war levels, exerting sustained pressure on living standards.
The IMF stated, “Prices are expected to gradually decline in the medium-term but will still remain significantly above previous projections. For instance, the forecasted prices for oil, natural gas, and coal in 2030 are 15%, 200%, and 130% higher than those forecasted by the IMF and World Bank in 2021. However, there is considerable uncertainty surrounding future price projections.”
With environmental concerns in mind, the IMF proposes eliminating subsidies and implementing higher taxes on fossil fuels.
According to the IMF, these polluting fuels are currently under-taxed to such an extent that it amounts to an implicit subsidy of approximately $5.7 trillion globally. When added to explicit subsidies, the total reaches $7 trillion.
“By removing explicit subsidies and implementing corrective taxes, fuel prices would rise. This would prompt businesses and households to consider environmental costs when making consumption and investment decisions,” stated the IMF.
While this approach may not receive universal support due to recent inflationary challenges, the IMF highlighted the benefits, stating, “The outcome would be a significant reduction in global carbon dioxide emissions, improved air quality, reduced rates of lung and heart disease, and increased fiscal capacity for governments.” The IMF estimates that such actions “could prevent 1.6 million premature deaths annually, generate $4.4 trillion in government revenue, and help achieve global warming targets by reducing emissions.”
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