Climate science makes it clear: We need a green transformation of our way of living. This year countries are presenting their plans for how to reduce CO2 emissions, and how to turn into a low carbon development. However, we also hear complains, and arguments, stating that it is too costly to convert away from our fossil fuel dependency. Fossil fuels are cheap, renewable energy is expensive.
The International Monetary Fund, IMF, has just dropped a bomb into this discussion. In a new reportthey estimate global energy subsidies by measuring the difference between consumer prices and the ‘true costs’ of fossil fuels, and the result is “shocking” - to use their own words.
According to their estimates, the global subsidies amount to a staggering US$5,3 trillion this year alone, which is US$168.000 per second.
If you are not shocked – you should be. That is 6,5% of the world’s total GDP.
IMF reveals that fossil fuel prices are artificially low by uncovering the cost of the so-called externalities from fossil fuel use – impacts not included in the price.
For example, the cost of health problems from air-pollution, damages to the environment and effects of CO2 emissions are not covered by the polluter. The cost is shifted to local people and local governments who have to pay the bill for healthcare, medicine, premature deaths, environmental clean-ups, effects of global warming etc. In the US alone, that “subsidy” cost amounts to a massive $700 billion. With the increasing global temperatures, that price will continue to rise over the coming years.
The costs of fossil fuel externalities cause governments to finance their added expenses through higher taxes, higher public debt and cutting public spending on e.g. health, education and infrastructure. The subsidies also discourage investments in the solutions – Renewable clean energy. It is now time to dispel the old myth. Fossil fuel is not cheap, quite the contrary, it is extremely expensive.
Governments around the globe should grasp on to this new knowledge with glee. By making fossil fuel prices reflect the actual true costs, consumption of fossil fuel would decrease, and so would the expenses for the externalities, the transition toward cleaner renewable energy sources would be facilitated, and fossil fuel tax revenues (as suggested by IMF) could be used to clean up environmental damage, investing in public welfare, protecting the poor and vulnerable and other beneficial issues.
Low carbon development is possible, and the green transition is about to start. Acknowledging the true costs of fossil fuels is a first step.
By Mattias Söderberg and Christina Ihler Madsen