IMF: To reduce pollution, cut energy subsidies

The International Monetary Fund is upping its estimate of the cost of global energy subsidies, while calling for reforms ahead of the U.N. Climate Change conference in Paris later this year.

At a cost of $5.3 trillion, energy subsidies represent 6.5 percent of worldwide GDP and exceed global public heath spending. And that taxpayer support is growing fast. The IMF's 2015 estimate, published Monday, is more than double the organization's previously estimated $2 trillion for 2011 across 188 countries.

Eliminating the energy subsidies could raise government revenue by $2.9 trillion, or 3.6 percent of global GDP, and cut global CO2 emissions by more than 20 percent and premature air pollution deaths by more than half, the IMF found.

Many Americans are likely unaware that their tax dollars go into the coffers of big energy companies, said Benjamin Schreiber, climate and energy program director at Friends of the Earth.

"People know when they are paying taxes, because they write a check. But they are not seeing that money go to oil companies," Schreiber told CBS MoneyWatch. "There is really no justification for subsidizing energy companies because they are making billions of dollars in profits and peddling a polluting product."

The fact that the IMF's update from just four years ago has the estimate jumping so sharply "shows you the damage from fossil fuels is massive and increasing," Schreiber said.

"While the large size of our new estimates may be surprising, it is important to put into perspective just how many health problems are linked to energy consumption and air quality," fiscal policy experts Benedict Clements and Vitor Gaspar write in a blog post that accompanies the IMF report. "In China alone, the World Health Organization estimates there are over 1 million premature deaths per year due to outdoor air pollution, caused by the burning of polluting fuels, particularly coal, and other sources."

An energy subsidy is defined as the difference between what consumers pay for, say, oil or electricity and its "true costs," which include supply expenses and the damage inflicted on people and the environment (plus a country's normal value-added tax or sales tax rate). Such subsidies are pervasive across advanced and developing countries, the study found.

Emerging countries in Asia accounted for about half of global energy subsidies, and advanced economies for roughly a quarter. In absolute terms, China had the largest subsidy, at $2.3 trillion, followed by the U.S., at $699 billion, and Russia, at $335 billion. The cost of subsidized energy in India came to $277 billion, followed by Japan, at $157 billion, and the EU at $330 billion.

Among the IMF's other findings:

• Energy subsidies damage the environment, cause more premature deaths through local air pollution, exacerbate congestion and other adverse side effects of vehicle use, and increase atmospheric greenhouse gas concentrations.
  
• Energy subsidies impose large fiscal costs, which need to be financed by some combination of higher public debt, higher tax burdens and crowding out of potentially productive public spending (e.g., on health, education and infrastructure) -- all of which can be a drag on economic growth.
  
• Energy subsidies discourage needed investments in energy efficiency, renewables and energy infrastructure, and increase the vulnerability of countries to volatile international energy prices.
  
• Energy subsidies are a highly inefficient way to provide support to low-income households because most of the benefits from such financial support are typically captured by rich households.