IMF expands view of energy subsidies to include social, enviro costs

The International Monetary Fund has released a report that tallies energy subsidies at $5.3 trillion dollars, or over 6% of global GDP; this is more than double their 2011 estimate.  By this calculation, “classic” subsidies account for less than 10% of the total; over $3 trillion is in the form of local pollution, social, and health costs, and over a trillion is in the costs of global warming.

The IMF elaborates:

The IMF has long argued that getting energy prices right can help national governments achieve their goals not only for the environment but also for inclusive growth and sound public finances. Increasing energy prices gradually and predictably to reflect their true costs would generate fiscal gains of about 3½ percent of GDP. . . (and) could be a game changer for fiscal policy in many countries. This would give room, for example, for governments to reduce some types of taxes (such as those imposed on labor) that weigh down growth; raise growth-enhancing public expenditure (e.g. for infrastructure, health and education); and finance targeted cash transfers for the poor. Furthermore, there would be appropriate incentives for investment in green technology because dirty energy would no longer be artificially cheap. The icing on the cake is that the benefits from subsidy reform—for example, from reduced pollution—would overwhelmingly accrue to local populations.

For decades, progressives have urged that the cost of such “externalities” in our energy system need to be accounted for.  It’s exciting to see that the IMF is fully on board with the need for—and benefits of—this full accounting.  See, for example, this classic David Roberts piece on a UN-funded report showing that none of the top 20 global regional industrial sectors would be profitable if they had to account for externalities.  It’s past time for this to change!

UPDATE: Over at Post Carbon Institute, Richard Heinberg has taken exception to the IMF’s too-easy conflating of “subsidies” and “externalities.”  He says this leaves the impression that the imbalance is as easily rectified by policy as is the ending of an actual subsidy; in fact, it will be much harder than that:

The IMF evidently wants policy makers to think fossil fuels are harmful and costly. Good: that’s true, and it’s helpful to know. It would be even better if this prestigious economic organization were to admit that eliminating the local pollution and global climate impacts of our current energy regime will require policy makers to do the very thing they least want to do: curtail and reverse economic growth. This in turn would probably entail redesigning financial and monetary systems so they do not require growth, supplementing GDP with quality-of-life indicators, rationing energy with a tradable quota system, enacting policies to gradually reduce population, and directing an ever-increasing share of continuing fossil fuel consumption to the industrial processes necessary to build the slower, more localized, renewable energy infrastructure of the future.

Evidently the IMF wants to spoon-feed its audience a little truth at a time. Only the easy bits are suitable now. It will save the hard truths for . . . when, exactly?

We’re not quite as certain that no-growth is the only way forward, though we do agree with Richard that systemic change is necessary, including creating ways to thrive without the inflated growth rates of the past.  Getting a real price on carbon is of course key, as is radically reducing our overall ecological footprint.  Our two alternative resilient investing strategies, Close to Home and Evolutionary, certainly respond to Richard’s concerns: Close to Home actions build the local economy—and enduring relationships—while reducing your reliance on the out-of-balance global system, and the Evolutionary strategy is very much about regenerative investing in land and habitats (with important tangible returns), as well as being part of the ephemeralization of much of the future economy—which should help us keep the economy thriving while using far fewer fresh resources.  All that said, it is indeed time to get past these easy headline-grabbing formulations and tackle the more difficult systemic change that is called for.

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