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

Author

Listed:
  • Ian W.H. Parry
  • Mr. Simon Black
  • Nate Vernon

Abstract

This paper 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. The methodology improves over previous IMF analyses through more sophisticated estimation of costs and impacts of reform. Globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP, and are expected to rise to 7.4 percent of GDP in 2025. Just 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for 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, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths. Accompanying spreadsheets provide detailed results for 191 countries.

Suggested Citation

  • Ian W.H. Parry & Mr. Simon Black & Nate Vernon, 2021. "Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies," IMF Working Papers 2021/236, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/236
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    Cited by:

    1. Missbach, Leonard & Steckel, Jan Christoph & Vogt-Schilb, Adrien, 2023. "Cash transfers in the context of carbon pricing reforms in Latin America and the Caribbean," IDB Publications (Working Papers) 12536, Inter-American Development Bank.
    2. Argueyrolles, Robin & Delzeit, Ruth, 2022. "The interconnections between Fossil Fuel Subsidy Reforms and biofuels," Conference papers 333492, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
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    4. Maruyama Rentschler,Jun Erik & Leonova,Nadia, 2022. "Air Pollution and Poverty : PM2.5 Exposure in 211 Countries and Territories," Policy Research Working Paper Series 10005, The World Bank.
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    6. Monasterolo,Irene & Mandel,Antoine & Battiston,Stefano & Mazzocchetti,Andrea & Oppermann,Klaus & Coony,Jonathan D'Entremont & Stretton,Stephen John & Stewart,Fiona Elizabeth & Dunz,Nepomuk Max Ferdina, 2022. "The Role of Green Financial Sector Initiatives in the Low-Carbon Transition : A Theoryof Change," Policy Research Working Paper Series 10181, The World Bank.
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    11. He, Hongjing & Huang, Yongyi & Nakadomari, Akito & Masrur, Hasan & Krishnan, Narayanan & Hemeida, Ashraf M. & Mikhaylov, Alexey & Senjyu, Tomonobu, 2023. "Potential and economic viability of green hydrogen production from seawater electrolysis using renewable energy in remote Japanese islands," Renewable Energy, Elsevier, vol. 202(C), pages 1436-1447.
    12. Diaz-Bonilla, Eugenio & Echeverria, Ruben G., 2022. "Climate finance: Funding sustainable food systems transformation," IFPRI book chapters, in: 2022 Global food policy report: Climate change and food systems, chapter 5, pages 48-57, International Food Policy Research Institute (IFPRI).
    13. Mr. Tobias Adrian & Mr. Patrick Bolton & Alissa M. Kleinnijenhuis, 2022. "The Great Carbon Arbitrage," IMF Working Papers 2022/107, International Monetary Fund.
    14. McQuinn, Kieran & O'Toole, Conor & Wendy Disch & Eva Shiel & Eoin Kenny, 2022. "Quarterly Economic Commentary, Spring 2022," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC2022SPR, June.
    15. Katharine Heyl & Felix Ekardt & Lennard Sund & Paula Roos, 2022. "Potentials and Limitations of Subsidies in Sustainability Governance: The Example of Agriculture," Sustainability, MDPI, vol. 14(23), pages 1-26, November.
    16. S. Mauricio Medinaceli Monrroy & Marcelo G. Velázquez Bilbao La Vieja, 2023. "Hydrocarbon Prices and Subsidies in Bolivia 1986 - 2025," Development Research Working Paper Series 05/2023, Institute for Advanced Development Studies.
    17. Simon Batchelor & Ed Brown & Nigel Scott & Matthew Leach & Anna Clements & Jon Leary, 2022. "Mutual Support—Modern Energy Planning Inclusive of Cooking—A Review of Research into Action in Africa and Asia since 2018," Energies, MDPI, vol. 15(16), pages 1-29, August.
    18. Armenia Androniceanu & Oana Matilda Sabie, 2022. "Overview of Green Energy as a Real Strategic Option for Sustainable Development," Energies, MDPI, vol. 15(22), pages 1-35, November.
    19. Erica Russell & Ian Christie, 2021. "The Remaking of Institutions for Local Climate Governance? Towards Understanding Climate Governance in a Multi-Level UK Local Government Area: A Micro-Local Case Study," Sustainability, MDPI, vol. 13(24), pages 1-23, December.
    20. Penny Mealy & Pete Barbrook-Johnson & Matthew C Ives & Sugandha Srivastav & Cameron Hepburn, 2023. "Sensitive intervention points: a strategic approach to climate action," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(4), pages 694-710.
    21. Andreas Fazekas & Christopher Bataille & Adrien Vogt-Schilb, 2022. "Achieving net-zero prosperity: how governments can unlock 15 essential transformations," Post-Print halshs-03742125, HAL.
    22. Kelly Bruin & Aykut Mert Yakut, 2023. "The Impacts of Removing Fossil Fuel Subsidies and Increasing Carbon Taxation in Ireland," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 85(3), pages 741-782, August.
    23. Jun Rentschler & Nadezda Leonova, 2023. "Global air pollution exposure and poverty," Nature Communications, Nature, vol. 14(1), pages 1-11, December.
    24. Garth Day & Creina Day, 2022. "The supply-side climate policy of decreasing fossil fuel tax profiles: can subsidized reserves induce a green paradox?," Climatic Change, Springer, vol. 173(3), pages 1-19, August.

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