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Cambridge Institute for Sustainability Leadership (CISL)

"For every $1 spent to support renewable energy, another $6 are spent on fossil fuel subsidy and only 8 per cent of the money spent on fossil-fuel consumption subsidies reaches the poorest 20 per cent."

IEA, World Energy Outlook 2015

The International Energy Agency (IEA) estimates  that Fossil-fuel subsidies were around $490 billion in 2014, but would have been $610 billion without reforms that have been enacted since 2009. This is based on the gap between what consumers pay and the actual cost of supply, but doesn’t consider the environmental and health costs.

The OECD calculates that direct budgetary support and tax expenditure for fossil fuel consumption and production in OECD countries amounted to $50-90bn annually between 2005 and 2011.

A recent report by an IMF working group estimates that the total cost of subsidies for fossil fuels, including direct subsidies and the environmental and health costs their use imposes were $4.9 trillion (6.5 per cent of global GDP) in 2013. In addition to reducing emissions, the IMF calculates that eliminating these subsidies in 2015 could raise government revenue by $2.9 trillion and cut premature air pollution deaths by more than half. The IMF’s calculation methodology is much broader and more inclusive and differs widely from other organisations.

Although it is important to note that the IMF, IEA and OECD do not define subsidies in the same way and hence the estimated costs from subsidies vary significantly. The Friends of Fossil Fuel Subsidy Reform (FFFSR) estimate that globally governments spend $400-600 billion a year to keep domestic prices for oil, gas and coal products artificially low. The most important message is that the costs are high and that the elimination of subsidies would have a net positive impact on the reduction of GHG emissions and pollution.

CISL’s Business and Climate Change online short course provides insight into the risks and strategic opportunities presented by climate change, enabling you to unlock new opportunities for growth and oversee a low carbon transition. Find out more and register here.