News | 28th Mar, 2013

IMF: Governments need to end energy subsidies

28 March 2013
Howard Schneider, Washington Post


Government subsidies of gasoline, electricity and other energy sources amount to about $1.9 trillion a year and should be ended or offset with taxes used to battle climate change and pay for social programs, the International Monetary Fund said Wednesday in a major foray into the global warming debate.

From top energy users such as the United States and China to the poorest of the poor, the fund said countries should be more aggressive in developing energy tax and pricing policies that reflect the true cost of fossil fuel use, including such “externalities” as pollution and the steps needed to mitigate the effects of a warming climate.

For the United States, the IMF estimated that would require a $1.40 levy per gallon of gas and other fees totaling more than $1,400 per person each year — around $500 billion in total, or more than 3 percent of the country’s annual economic output.

Not recognizing those costs, the IMF argues, has had profound consequences for energy markets and the world economy: encouraging overconsumption; leaving some nations short of funds to address health, education and other needs; and distorting investment decisions worldwide.

“It is time for subsidies to end and carbon taxation to be put in place,” IMF First Deputy Managing Director David Lipton said in an interview Tuesday, before the release of a study researched or reviewed by about 30 staff members and vetted by the IMF’s executive board. “You don’t want overconsumption based on getting something for less than it costs and forcing someone else to pay.” The “someone else” in this case is either taxpayers left with the bill for direct government subsidy programs or those harmed by pollution, climate change and other side effects of energy use.

Both the IMF and the World Bank, its sister agency, are intensifying their attention to climate change, an issue officials believe is one of the world’s key long-term economic challenges.

The issue has become central to the emerging agenda of new World Bank President Jim Yong Kim, who now routinely presses national leaders in meetings for their climate change plans, and compares the effort needed with the U.S. race to the moon in the 1960s. The bank last year released a report forecasting what the world would look like if average temperatures rise 4 degrees in coming decades, instead of the 2-degree increase set as an international goal. The consequences, the bank said, would be catastrophic for some nations.


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