A new working paper from the International Monetary Fund (IMF) that received widespread press coverage claims that fossil fuels received $7 trillion in subsidies last year, or about 7.1% of the global gross domestic product. This was $1 trillion more than the authors estimated fossil fuels received in 2021.
The figures in the paper were widely reported as coming from the IMF and the subsidies portrayed as taxpayer money that goes to oil companies. That’s not the case at all.
Intangibles
Diana Furchtgott-Roth, an adjunct professor of economics from George Washington University, explained in the National Review that the IMF analysis wasn’t published in a peer-reviewed journal and doesn’t represent the views of the IMF, something explicitly stated in the paper. It describes research in progress and is meant to encourage debate.
Furchtgott-Roth, who is director of the Center for Energy Climate and Environment at the Heritage Foundation and former chief economist for the U.S. Department of Labor, told Cowboy State Daily that the paper confuses subsidies and externalities.
She calls them “intangibles,” and these accounted for 82% of the estimated so-called “subsidies.”
These are potential negative impacts resulting from fossil fuel use, without consideration of the benefit or value derived from the use of them. It would be like calculating the cost of medical treatments for traffic accidents, assuming that cars don’t provide valuable transportation, and calling those subsidies since they aren’t including the price of the car.
Unlike traffic accidents, however, the externalities the paper’s authors calculate as subsidies for fossil fuels impact are difficult, or sometimes impossible, to calculate. These include global warming impacts and health impacts from air pollution.
“We don’t really know anything about these intangibles that they say are going to cause deaths,” Furchtgott-Roth said.
Political Ploy
Rep. John Bear, R-Gillette, told Cowboy State Daily that the Wyoming Minerals and Revenue committees have a general consensus that Wyoming needs a comprehensive tax plan for all energy sectors, but tax policies in the state take into account subsidies.
“I would say that implicit subsidies that the IMF is referring to can’t be included in” the estimates of subsidies, Bear said.
These are all taxed at the point of production.
The IMF paper notes that there is “substantial” differences between countries for estimated deaths from coal-fired electrical generation. China and Russia have some of the highest rates of death per ton of emissions pollution, whereas other countries like France, Australia and the U.S. have rates half as much or less.
Bear said that compared to the rest of the world, the U.S. has among the cleanest industry practices.
This is true of wealthier countries, which have higher rates of fossil fuel use. The paper doesn’t consider these benefits and assumes that absence of fossil fuels has a net benefit.
“It’s just a political ploy in my opinion,” Bear said.
Benefits
Furchtgott-Roth said the paper ignores that investments in fossil fuels in emerging economies have benefits that outweigh the costs.
The paper works on the assumption that fossil fuels only have negative impacts for all who use them and there are no benefit losses for their reduction or elimination.
For example, according to the paper's data appendix, the Central African Republic has no implicit or explicit subsidies. This would mean the country should be seeing great benefits from not using fossil fuels.
However, according to the World Bank, the country is “one of the poorest and most fragile countries in the world, despite its abundant natural resources.”
“If we have more fossil fuels and more carbon [emissions], we might reduce deaths in Latin America and Africa,” Furchgott-Roth said. “They’d have more power. They’d be able to have electricity and running water.”
Other Questions
The paper has other questionable externalities included as subsidies, such as traffic congestion and wear and tear on roads. It proposes a shift to electric vehicles to avoid these externalities, but it doesn’t explain how EVs reduce traffic congestion. The vehicles are also heavier and increase wear and tear on roads.
“They say they want everyone to drive EVs. They don’t say they want fewer people to drive cars. A road full of EVs causes just as much congestion,” Furchtgott-Roth said.
The paper also doesn’t make any comparisons of subsidies received by the renewable energy industry. Such an analysis would have to consider that wind and solar make up about 12% of the total energy consumed globally, whereas fossil fuels account for 82% of that energy.
Wind and solar also only produce electricity — about 20% of the total energy consumed globally — whereas a large portion of energy from fossil fuels is used directly, such as in industrial heating.
The latest data from the U.S. Energy Information Administration estimates that in the U.S., wind, solar and hydroelectric received $15.6 billion in 2022, but accounted for only 21% of the energy produced. Fossil fuels and nuclear, which produced 79% of U.S. energy, received only $3.6 billion. These were direct subsidies, absent any externalities.
Likewise, besides providing energy, fossil fuels are also the basis for thousands of products, including plastics and fertilizers.
