A report by the International Monetary Fund (IMF) released this week concludes that subsidies are distorting energy markets to the tune of $1.9 trillion a year and should be reformed. Because public funds are being used to keep consumers from paying the true price of energy, countries are failing to develop alternative forms of energy and/or encourage changes in behavior and energy efficiency. From the Washington Post:

The conclusion, the IMF says, is that each year a massive annual transfer takes place that devotes some 2.7 percent of world economic output to keeping energy prices lower than they should be.

. . .

In the developed world, the IMF says the subsidies are even larger but less overt, reflecting the fact that government tax policies don’t reflect the costs of pollution and other externalities. Using economic models and other studies performed as part of the global warming discussion, the IMF puts those indirect subsidies at $1.4 trillion — $25 dollars for each ton of carbon dioxide produced — and suggests they be offset through an “efficient” tax that makes energy users pay a price more reflective of the full cost of the product. In the United States, that implicit subsidy amounts to 2.4 percent of annual economic output — about $363 billion as of 2011.

. . .

Still, the fund argues, the costs — be they direct or embedded in the need for pollution mitigation now or climate change mitigation in the future — are being paid by someone. Rather than hide from that fact, Lipton said, governments should lay plans to, over time, change the way energy is priced.

This last paragraph is the ballgame. The true costs of energy are being hidden. These are the same costs that companies and politicians try to distract us from when we talk about health, safety, and environmental regulations. Coal subservient politicians talk about the job losses a carbon tax or strict air pollution regulations may cause. What they don’t talk about are the billions in health care costs burning coal creates.

Yes, prices for energy would rise if subsidies were removed, but that doesn’t mean people would simply have more money coming out of their pockets. In the United States, energy subsidies could be used to improve health care and reduce the burden on families due to insurance premiums (average individual health coverage costs about $5,615 a year, about $15,745 for families according to the Kaiser Family Foundation compared to the roughly $2,900 a year the average American spends on gas). That money could also be used for a massive public transportation investment program creating jobs and reducing carbon emissions. Unfortunately, as long as fossil fuel companies hold sway over Congress, legislatures and the media, reforms, including a carbon tax, are unlikely to get very far.


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