Removing fossil fuel subsidies, which typically benefit the rich more than the poor, could gain up to 4% of global Gross Domestic Product (GDP) in additional resources over the medium term to invest in people, growth, and help protect the most vulnerable, the International Monetary Fund (IMF) said on Thursday.
Subsidies—which amount to 6.5% of GDP globally— include both the government funding to artificially reduce the price of energy below cost (0.4% of global GDP) and the under taxation of fuel consumption (6.1%of global GDP), according to the IMF’s calculations.
Scientists say energy consumption contributes to global warming, local pollution, increased traffic congestion and more accidents.
The Fund, in its Fiscal Monitor April 2019, urged governments worldwide to adapt their policies on taxes and spending and shift them to growth-enhancing investment. For example, more money to build classrooms, hospitals and roads, while cutting wasteful spending, such as inefficient energy subsidies.
Billions of US dollars spent every year in Africa on fossil fuel subsidies could well be put to better use, like to fund pensions, education, healthcare, better infrastructure, technology, and climate change. South Africa is one of the top energy subsidies spenders on the continent, with its annual expenses amounting to R30 billion (around US$2 billion), according to Fossil Free South Africa.
“Our analysis has shown that fossil fuel production has been and continues to be supported in various ways in South Africa. Since 2008, direct transfers have ranged between US$454 million and US$2.09 billion per year, whereas quantified revenues foregone have been between US$2.45 million and USD$336 million,” Jesse Burton, Tawney Lott And Britta Rennkamp pointed out in a 2018 publication titled ‘’Sustaining Carbon Lock-In: Fossil Fuel Subsidies in South Africa’’.
This money spent on other priorities can help raise long-term economic growth, which is a key ingredient to reduce the burden of high public debt, the Fund said.
“It can also spread economic benefits more widely within and across countries and help restore the public trust in institutions necessary for economic stability.”