The link between energy subsidies and climate change

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It’s interesting to see that global financial leaders are beginning to address climate change and energy subsidies, two issues often viewed independently but which are inextricably linked. Leaders from the IMF, World Bank and the OECD are starting to speak publicly about how global financial institutions as well as governments should act on cutting carbon emissions even before governments do.

The IMF actually released a video this month to go with its new book detailing the damage done by global energy subsidies. The video opens with the startling figure that energy subsidies accounted for $2 trillion in 2011, or 8.5 percent of all public revenues flowing to governments.

Among the issues with energy subsidies that the video touches on is that subsidies keep energy prices low, discouraging investment in technology that could advance the energy economy.  Additionally, energy subsidies take money out of health and education and use it to lower the cost of fossil fuels.

So what to do? Well, the IMF’s new book addresses energy subsidy reform. It’s always been a tricky issue because some subsidies exist in developing countries where rising energy costs create political instability. Or at the very least, energy subsidies keep certain leaders in power. There’s also no word on whether the IMF believes renewable energy subsidies should be phased out as well. Germany has spent a 100 billion Euros subsidizing renewables. But still the lion share of subsidies go to fossil fuels and a total phaseout of all energy subsidies would probably be a major benefit for renewables as we’d finally see the true cost of fossil fuels.