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Energy Subsidy Reform

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Energy Subsidy Reform

Lessons and Implications

IMF,

15 min read
10 take-aways
Audio & text

What's inside?

The world’s energy subsidies are a $1.9 trillion boondoggle.

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Editorial Rating

8

Qualities

  • Applicable

Recommendation

Although 176 nations sweeten the pot for oil and electricity producers and consumers, the International Monetary Fund (IMF) finds that such energy subsidies amount to a $1.9 trillion boondoggle hidden in plain sight. The IMF argues – based on a study of 22 nations – that these subsidies are a bad idea for a number of reasons. National handouts encourage consumption, discourage innovation and exacerbate household income inequality. The IMF urges national governments worldwide to pursue a six-step approach to ending subsidies, including creating a clear plan, and communicating the costs of subsidies and the benefits of ending them. While this report highlights the eye-popping costs of energy subsidies, its dry writing style may make some readers work a bit too hard. Yet, as reports go, it’s nicely laid out, with bold-faced highlights and an inviting design that highlights key data. getAbstract recommends this report to investors, policy makers, NGOs, energy executives and all those seeking insight about energy markets.

Summary

A Trillion-Dollar Boondoggle

Politically popular, economically dubious and environmentally questionable, energy subsidies make up a huge part of the global economy. Post-tax subsidies granted by 176 nations amounted to $1.9 trillion in 2011, with the world’s largest subsidies coming from the United States ($502 billion), China ($279 billion) and Russia ($116 billion). Other nations throughout Europe, Asia and Latin America subsidize the production and consumption of gasoline, natural gas, coal, kerosene and electricity, but such state subsidies have become increasingly problematic. These incentives to producers and consumers skew the world economy by depleting public purses and discouraging investment and innovation.

The Problem with Subsidies

As governments continue to take a large role in sharing energy costs, economists are realizing that subsidies limit growth in a number of ways, including:

  • Less investment in the energy industry – Low energy prices depress profits for producers, which discourages private investors from bankrolling projects that might boost production, foster innovation or reduce demand through energy efficiency. Governments...

About the Author

International Monetary Fund (IMF) staff led by Benedict Clements prepared this report, which has contributions from two dozen IMF employees.

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