Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies

IMF Working Papers, September 24, 2021

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Canonical URL: Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies

Provides a comprehensive global, regional, and country-level update of:
- (i) efficient fossil fuel prices to reflect their full private and social costs; and
- (ii) subsidies implied by mispricing fuels.
Methodology improves over previous IMF analyses through more sophisticated estimation of costs and impacts of reform.
Accompanying spreadsheets provide detailed results for 191 countries.

Fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP.
Subsidies are expected to rise to 7.4 percent of GDP in 2025.
Composition of the 2020 subsidy:
- 8 percent reflects undercharging for supply costs (explicit subsidies).
- 92 percent reflects undercharging for environmental costs and foregone consumption taxes (implicit subsidies).
Efficient fuel pricing in 2025 would:
- reduce global carbon dioxide emissions 36 percent below baseline levels.
- raise revenues worth 3.8 percent of global GDP.
- prevent 0.9 million local air pollution deaths.
The paper length is 40 pages and is Working Paper No. 2021/236.

Incorporates more sophisticated estimation of costs and impacts of reform compared with previous IMF analyses.
Evaluates both private supply costs and social costs (including environmental costs and foregone consumption taxes) to derive efficient fuel prices and implied subsidies.

Adopting efficient fuel pricing can deliver simultaneous outcomes in 2025:
- Large emissions reductions consistent with keeping global warming to 1.5 degrees (36 percent below baseline CO2 emissions).
- Substantial revenue gains totaling 3.8 percent of global GDP.
- Significant public health benefits by preventing 0.9 million local air pollution deaths.
The vast majority of current subsidy values are implicit and stem from underpricing environmental externalities and consumption taxes, implying reform focus beyond explicit supply-side subsidies.

Authors: Ian W.H. Parry, Simon Black
Date: September 24, 2021
Series: IMF Working Papers, Issue 236, Working Paper No. 2021/236
DOI: https://doi.org/10.5089/9781513595405.001
ISBN: 9781513595405
ISSN: 1018-5941
Subjects / Keywords: Energy subsidies; Environment; Expenditure; Fuel prices; Greenhouse gas emissions; Non-renewable resources; Prices; climate change; efficient fuel prices; Energy subsidies; fossil fuel; fossil fuel subsidies; fossil fuel subsidy; Fuel prices; fuel user price; Global; Greenhouse gas emissions; local air pollution mortality; Non-renewable resources; price reform; revenue gains; spreadsheet tools.; supply cost; supply costs

IMF Working Papers — Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies (2021/236)