2019-05-07

IMF working paper 2019: Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates

I think this is going to turn into an update to Fossil fuels subsidised by $10m a minute, says IMF? from 2015. The report (WP/19/89) itself is available from here. We read:
This paper updates estimates of fossil fuel subsidies, defined as fuel consumption times the  gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations), for 191 countries. Globally, subsidies remained large at $4.7 trillion (6.3 percent of global GDP) in 2015 and are projected at $5.2 trillion (6.5 percent of GDP) in 2017. The largest subsidizers in 2015 were China ($1.4 trillion), United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies. Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.
coalSo that's nice - they have told us what they mean by "subsidy". Now I look, the previous report (WP/15/105) has much the same authors but a somewhat different abstract; my quibbles from before about what should "really" count as a subsidy remain. As before the "implicit" subsidies are much larger than the "explicit" ones. Let's look at one of their pictures, to try to make this clearer.

The pic tries to compare existing and efficient prices across the world for coal. One obvious puzzle is that the retail price (yellow circles) is near constant. Coal is globally trafficked, but that degree of constancy seems weird. GW is accounted for (red) at $40 per tonne. And for coal, the rest is local pollution. Some of this makes sense - presumably the Ukrainians burn bad coal badly in densely populated areas; ditto Thailand, China, Russia. The very low values for Mexico, Tanzania and Ethiopia are harder to understand. World-averaged, their calculations are that about 2/3 of coal "subsidies" are local pollution, and 1/3 GW.

gas Maybe looking at petrol will make things clearer. We see now what we already knew, that retail prices vary wildly. But we see something else that we probably didn't realise, that part of the implicit subsidy for petrol is "accidents". Another quite large one is congestion. Leading to the apparently bizarre conclusion that a country could potentially reduce it's fossil fuel subsidies by building more roads. Wait, what?

In a very few (basket) cases retail cost is less than supply cost, and these are the usual suspects: Saudi Arabia, Iran. These are unquestionably subsidies. Glboally, about 2/5 of petrol "subsidy" is local pollution; 2/5 other local factors; and the rest a mix.

So there you have it. This is of course not an IMF official document merely a working paper, but that won't stop people saying The IMF — no enemy of business — estimates that globally fossil fuels, which poison our future, are being subsidized $5.2 TRILLION annually...

Incidentally, I have no objection at all to their defining a quantity that is "the  gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations)". That seems like a useful quantity; I'm just doubtful that the bare word "subsidy" is a useful shorthand for that quantity.

Refs


* Why is carbon pricing in some countries more successful than in others? by Franziska Funke and Linus Mattauch
* The Hidden Subsidy of Fossil Fuels - A new report says that the world subsidized fossil fuels by $5.2 trillion in just one year. But that calculation is less tidy than it seems -  by Robinson Meyer, The Atlantic.
* Walmart Bullied by Government, or Was It? by Pierre Lemieux
What Can A Research-Minded Metal Detectorist Do In Sweden? Aardvarchaeology – by Dr. Martin Rundkvist

12 comments:

Anonymous said...

I do not understand what figure (a) represents. Here in Argentina, coal accounts for less than 1% of the primary energy matrix (3% of coke in electric matrix)

William M. Connolley said...

Fig (a) is cost. But not volume; so it entirely compatible with Argentina using little coal.

CapitalistImperialistPig said...

It's extremely hard to accurately calculate these social costs and probably not sensible to call them subsidies. I don't think I've seen any estimate of the economic cost of global warming that I thought was useful or interesting.

Andy Mitchell said...

If we accept the notion that it is the corruption of the GOP by fossil fuel industry money at least in part that has led to the election of Donald Trump, then the cost to society of fossil fuels has been underestimated.

Victor Venema said...

It is fair to argue that is is hard to compute the costs of the externalities. What is the cost of a dead child due to asthma?

However, not paying these costs are naturally subsidies. Especially for a libertarian, someone who believes in freedom, absence of coercion and efficient prices, that should be self-evident. It is the far right which feels it is natural that the powerful should be able to transfer such costs to the powerless.

William M. Connolley said...

That they are costs is indeed obvious. Calling them externalities would be uncontentious. calling them subsidies is odd, because it is not clear who they are subsidies to.

Take the cast of a poor third-world type who cooks on a dirty indoor stove thereby killing his child via asthma or some other type mechanism. You are counting the cost of that death as a subsidy. So who exactly is subsidising whom, in that example?

Victor Venema said...

They are subsidies to the polluter, who makes more money and, if a capitalist, generally will not be sitting in his own fumes.

William M. Connolley said...

But the polluter, in the example, is the poor third-world type.

So your contention is that the poor third-world polluter is subsidising himself to kill his children? If not, explain clearly what your position is.

Victor Venema said...

There are also people who work for Uber making a loss, but getting cash to survive on the short term. The economic system you adore and would like to make worse is brutal.

William M. Connolley said...

It isn't clear to me if you intend that as an answer to my question. To me, it looks like an evasion.

Victor Venema said...

It was intended as an answer. To me, going to someone in a hut in the middle of nowhere looks like an evasion when talking about rich people privatizing the gains and socializing the loses. These rich people do not sit in the fumes they force on us.

William M. Connolley said...

I don't think it is an answer. Try a more explicit one, that answers the actual question: is the poor third-world polluter subsidising himself to kill his children?