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John Giles/PA Wire
The Price of Power

Countries are spending more on energy subsidies than health

The figures have been labelled as “shocking”.

THE INTERNATIONAL MONETARY Fund has voiced alarm about global energy subsidies, which are predicted to hit $5.3 trillion in 2015 – more than government health spending.

“These estimates are shocking,” the IMF said in a report, noting the figures were among the largest negative factors for economic growth it had ever estimated, piling up adverse effects on efficiency, growth and inequality.

The report estimated that this year’s energy subsidies represent 6.5% of the global economy, likely exceeding government health spending across the world.

Long an opponent of energy subsidies, the IMF defines them as the difference between the amount of money consumers pay for energy and its “true costs”, plus a country’s normal value-added or sales tax rate.

In addition to what is required to produce and distribute energy, the “true costs” include environmental effects like carbon emissions that lead to global warming and the health effects of air pollution.

According to the IMF, China is by far the largest spender on energy subsidies, at $2.3 trillion a year, followed by the United States at $699 billion and Russia at $335 billion.

Smoking factories along China rail road IsaacMao IsaacMao

Subsidies double

The report said that overall energy subsidies had more than doubled since 2011, the year covered by a similar IMF report in 2013.

The IMF explained that more than half of the increase was due to more precise evidence of the damaging effects of energy consumption on air quality and health, such as premature deaths.

The IMF has long argued that getting energy prices right can help national governments achieve their goals not only for the environment but also for inclusive growth and sound public finances,” the report said.

The 188-nation IMF recommended countries increase energy prices gradually to reflect their true costs, an action it estimated would yield fiscal gains of about 3.5% of gross domestic product.

Kansas Daily Life Associated Press Associated Press

The additional gains would give governments room to reduce some taxes, raise growth-spurring public spending on infrastructure, health and education, and finance cash transfers for the poor, it said.

The IMF in March conditioned its $40 billion bailout program for Ukraine in part on the government undertaking energy sector reforms, including reductions in energy subsidies.

First published 16.59

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