IMF calls for end to energy subsidies

A new report from the International Monetary Fund calls for industrialised countries to rein in the subsidies given to for fossil fuel producers and exporters.

Energy subsidies totalled $1.9 trillion in 2011, the IMF said. While the goal of the subsidies is to keep energy prices low for consumers, they also accounted for 2.5% of global gross domestic product, or about 8% of all government revenue.

In the report titled Energy Subsidy Reform - Lessons and Implications, economists looked at a database of 176 countries and analysed ways to reform energy subsidies using case studies of 22 countries.

"The paper shows that for some countries the fiscal weight of energy subsidies is growing so large that budget deficits are becoming unmanageable and threaten the stability of the economy," Reuters quoted IMF First Deputy Director David Lipton as saying.

Click here to read the report in full.

The US was the biggest energy subsidiser, giving away about $501 billion in assistance to companies. China and Russia came in second and third at $279 billion and $116 billion, respectively.

And instead of helping poorer consumers, the IMF said, these subsidies end up taking away money that might otherwise be spent on civil infrastructure, education and health care. As such, the subsidies end up benefiting wealthier people more, since those people consume more energy.

Energy subsidies also encourage greater consumption of dirty fossil fuels and make cleaner technologies like renewable energy more expensive and less competitive.

"Removing these subsidies could lead to a 13% decline in CO2 emissions and generate positive spillover effects by reducing global energy demand," the report said.

For economies such as the US, scrapping subsidies for fossil fuels could also add revenue into cash-strapped government coffers, the IMF said.

"Insufficient energy taxation, including in the largest economy in the world, the United States, is a problem not only for the environment, but many advanced economies are in need of additional resources to support the effort to lower public debt, which is very high now in those economies," said Carlo Cottarelli, director of the IMF's fiscal affairs department, according to Reuters.

Reforming energy subsidies could lead to more robust economic growth by encouraging a more efficient distribution of resources and investment in energy-efficient alternatives, Lipton said.

US President Barack Obama and other Democrats have urged Congress to scale back some $4 billion in annual subsidies granted to the oil and gas industry.

Industry groups have staunchly opposed these moves to “eliminate the crucial tax provisions of intangible drilling costs and percentage depletion", which the Independent Petroleum Association of America says "are not subsidies at all".

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