IMF – Climate- Science.press

Introduction

In the ever-evolving discourse surrounding climate change and energy policy, few topics generate as much debate as the alleged subsidies for fossil fuels. Tilak Doshi’s incisive article sheds light on the International Monetary Fund’s (IMF) recent claims regarding these subsidies, offering a critical examination of the figures and the motivations behind them.

The IMF’s Eye-Catching Headline

Legacy media, with its penchant for sensationalism, recently paraded a headline that would give even the most seasoned energy analyst pause: “Fossil fuels being subsidised at rate of $13 million a minute, says IMF”. Citing a staggering $7 trillion in support for fossil fuels in 2022, the claim is audacious, especially when juxtaposed against global expenditures on education and military.

“For those of us who have not completely given up on tracking legacy media headlines on climate issues due to the sheer noise-to-signal ratio, there was one recently that made even the most skeptical take notice.”https://www.forbes.com/sites/tilakdoshi/2023/09/06/energy-subsidy-shenanigans-the-green-imf-at-work/?sh=da9f26c4d89d

The Discrepancy in Estimates

The IMF’s figure starkly contrasts with estimates from other reputable institutions. The International Energy Agency (IEA) pegged global fossil fuel subsidies at a record $1.097 trillion in 2022, while the International Institute for Sustainable Development estimated them at $1.4 trillion for the G20 group.

“Why do these estimates vary? The differences in these estimates lie partly in varying methodologies employed to measure subsidies. They also reflect the inherently elastic nature of the subsidy concept.”

Understanding Subsidies: Not All Are Created Equal

Subsidies, in their essence, are government expenditures aimed at supporting specific sectors or demographics. They can be transparent, like price support for farmers, or opaque, favoring a particular industry or technology.

“A subsidy is government expenditure, in cash or kind (for example, a tax credit), in favor of households or firms as financial redistribution in the overall interest of the public.”

Deciphering the IMF’s “Subsidies”

The IMF’s classification of fossil fuel subsidies is intriguing. They differentiate between “explicit” subsidies, which refer to observable undercharging for fossil fuels, and “implicit” subsidies, which account for hypothesized costs of global warming and local air pollution.

“The fossil fuel subsidies identified by the IMF in its 2023 Update on Fossil Fuel Subsidies Data refer to “explicit” and “implicit” subsidies.”

The Flawed Logic of Implicit Subsidies

The IMF’s inclusion of “implicit” subsidies is a contentious point. By factoring in the costs of global warming, such as rising sea levels, extreme weather, and the spread of diseases, the IMF inflates the subsidy figure. However, this approach is problematic, as it doesn’t account for the positive externalities of fossil fuel use.

“While the IMF takes into account negative externalities in its measure of “efficient” fuel prices, it does not consider well-documented positive externalities of fossil fuel use in its report.”

The Greening Effect of Carbon Dioxide

One significant positive externality of increased carbon dioxide in the atmosphere is the greening of Earth’s vegetated lands. This phenomenon, which has been observed over the past 35 years, is largely attributed to rising levels of atmospheric carbon dioxide.

“An important example of the positive externality of carbon dioxide in the atmosphere is the significant greening of a quarter to half of Earth’s vegetated lands over the last 35 years largely due to rising levels of atmospheric carbon dioxide.”

The IMF’s Shift in Mandate

Historically, the IMF’s primary role was to maintain global financial stability. However, in recent years, the institution has expanded its purview to include climate change, aligning itself with the climate agendas of various governments.

“But what is an institution set up to act as a financial watchdog and first responder to countries in financial crisis doing dishing out advice on climate change?”

The Dangers of Overreach

The IMF’s foray into environmental policy is concerning. By delving into areas outside its expertise, the institution risks undermining its credibility and the efficiency of international capital markets.

“Climate policy is clearly beyond the scope of any financial regulator’s expertise. Given the uncertainty within the climate science community itself, there is no reason to believe that the IMF can have any greater understanding of climate risks.”

Conclusion

Tilak Doshi’s article offers a compelling critique of the IMF’s claims regarding fossil fuel subsidies. By highlighting the discrepancies in subsidy estimates and the flawed logic behind the IMF’s methodology, Doshi underscores the need for a more nuanced and informed discussion on energy policy.

From Science Matters

By Ron Clutz

The recent IMF updated report on fossil fuel subsidies took on the appearance of the Mad Hatter’s tea party (Alice in Wonderland) when you look into what is claimed to be subidizing hydrocarbon energy. Robert Lyman explains the tricks and dishonesty running through this ongoing narrative against conventional energy sources, while ignoring the massive taxpayer direct funding of wind and solar power. His Financial Post article is Most fossil-fuel ‘subsidies’ aren’t actually subsidies. Excerpts later on with my bolds and added images. But my overview of the context for these remarks.

Context–Back to Basic Terms

Climate activists and renewables lobbyists are acting like Mad Hatters, twisting language and logic to pursue their agendas. Let there be some common sense injected here.

A subsidy would be when the government takes money that has been taxed, borrowed, or printed, and pays it to some company like Solyndra to do something that the market does not support. Often these subsidies subsidize technologies that do not exist and may never exist (and they say WE ignore the laws of physics.)

In contrast, a tax reduction is NOT a subsidy. A tax credit says an industry gets to keep more of its own money that it has produced selling a product people want and need in the free market.

There is a huge difference between a law that lets you keep more of your own money; and another law that actually gives you someone else’s money. The two are not the same thing. Actually, the oil industry pays higher taxation rates than other industries and subsidizes the government with the billions it pays in taxes, not the other way around.

There are also billions more in economic benefit to the nation from the jobs they create and the increased mobility and productivity people enjoy by using our transportation system based on hydrocarbon fuels.

The Big Lie: IMF counts not charging companies the full costs of global warming
as a subsidy. Common sense says it isn’t

Economists are used to having their terminology misinterpreted, co-opted and misused, usually in the interests of politics. One of the most common words to suffer this fate is “subsidy.” The Gage Canadian dictionary defines a subsidy as “a grant or contribution of money, especially one made by a government.” Economists would agree with that definition. Governments, on the other hand, rarely acknowledge that they subsidize anything. They “invest” — though, curiously, they seldom refer to the rate of return on their investments.

I was reminded of all this by the news last week that the International Monetary Fund (IMF) has published an updated version of its 2015 Working Paper on global and country-level subsidies for fossil fuels. According to the paper, total global subsidies “surged to a record $7 trillion last year,” equivalent to 7.1 per cent of world GDP. The paper’s authors estimate that scrapping these subsidies would: prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion and put emissions on track to reaching official global warming targets. An annex to the report indicates that in 2020 Canada’s subsidies to fossil fuels were US$64 billion, or 3.8 per cent of GDP.

The paper’s extraordinary findings are almost entirely the result of how it defines “subsidy.”
It divides subsidies to fossil fuels into “explicit” and “implicit” subsidies.

Subsidies Wordplay

Explicit subsidies are the kind economists and ordinary people would recognize as subsidies: grants to cover some portion of the costs of production, as well as tax incentives and deductions (e.g., capital cost allowances) to fossil fuel producers for such things as investing in exploration and development.

By contrast, “implicit” subsidies are defined as “under-charging” producers for the environmental costs they generate from their exploration and production activities and consumers for perceived environmental costs not adequately covered by various consumption taxes (e.g., sales taxes, value-added taxes and carbon taxes).

So when, for instance, a country fails to impose a consumption tax high enough
to cover the perceived costs to society of climate change, congestion or
local pollution, the paper would classify that as a subsidy.

The working paper indicates that explicit global subsidies were US$450 billion in 2020, or six per cent of the total. Most of these are actually so-called tax expenditures: tax credits or deductions for investments in high-risk exploration and development activities, similar to those provided to firms in other sectors of the economy.

94% of Hydrocarbon “Subsidies’ Actually “Externalties”

That leaves the 94 per cent of subsidies that were what the paper refers to as “externalities.” Let’s be clear. Externalities are not subsidies. They are a cost or benefit of an economic activity that affects a third party not directly related to that activity. The cost is not always evident, nor is it clear by what mechanisms such costs and benefits should be shared. While the paper does not break down the percentages attributed to externalities, its 2015 predecessor estimated that the costs of global warming were 37 per cent, local air pollution 13 per cent, congestion 32 per cent, vehicle accidents five per cent and road damage two per cent. In effect, the paper is arguing that not making the fossil fuel industry pay the full cost of global warming constitutes a subsidy to the industry. The same for its not paying the full cost of local air pollution or of traffic congestion or road deaths, and so on. Attribution of any of these costs to fossil fuels is highly questionable, but one obvious question is why fossil fuels are to blame for road congestion. If all vehicles were electric, would there be no congestion?

The vast majority of what the paper calls “subsidies” thus relate to charges not imposed for the harmful external effects of consuming fossil fuels, especially in oil-producing countries that choose to impose lower excise and sales taxes on gasoline and other fuels. The paper finds that East Asia and the Pacific regions account for almost half of total global energy subsidies. In effect, the report concludes that the prices of energy should be substantially raised for the world’s poor. This, of course, was not noted in the media summaries of the paper.

The paper did not explain how it calculated Canada’s 2020 subsidies to fossil fuels but, given its general analysis, one can only assume it was based on the judgment that fossil fuel costs to consumers were not high enough. But in 2018, total taxes on gasoline alone were roughly $24 billion. One has to wonder how the IMF’s math figures that this, and the more recent increases in carbon taxes, still constitute under-charging for externalities.

A final difficulty with the IMF paper is that it excludes any consideration of the positive externalities from reliance on fossil fuels. They are the most secure, affordable, storable, and reliable energy sources we have, and the ones upon which the remarkable advances in the global economy over the last century have been based. That is well worth bearing in mind as we consider the meaning of “subsidy.”

Summary

The Mad Hatters turn things upside down. Society is subsidized and made wealthy by fossil fuels, not the other way around. Some of that wealth is being diverted to renewable energy companies who do not create enough value to be in business without direct payments of tax dollars. They prove it by declaring bankruptcy when their subsidies are reduced. Worse, hooking up wind and solar intermittent power to electrical grids adds more cost and unreliability than the renewable power is worth.