Global fossil fuel subsidies and costs hit record $7tn in 2022, IMF reports

Receive free Climate change updates

We’ll send you a myFT Daily Digest email rounding up the latest Climate change news every morning.

Global fossil fuel subsidies hit a record total of $7tn in 2022 as governments rushed to shield consumers from soaring energy prices sparked by Russia’s invasion of Ukraine, the IMF estimates.

The IMF study said subsidies for coal, oil and natural gas in 2022 were equivalent to 7.1 per cent of global gross domestic product. This represented more than governments spent on education, and two-thirds of what was spent on healthcare. 

The elevated figure produced by the IMF includes so-called implicit subsidies, which are the result of governments undercharging for the environmental costs incurred by burning fossil fuels. These costs include air pollution and global warming, the IMF said. 

The bulk of the global subsidies accounted for in the study fall into this category, the authors said, with the value forecast expected to grow as developing countries increase their consumption of fossil fuels. 

The report from the IMF comes as the world experiences the hottest average monthly global temperatures ever recorded. The rise in global temperatures of at least 1.1C during the industrial era is caused predominantly by the burning of fossil fuels, scientists have concluded.

“Explicit” subsidies — defined as consumers paying less than the supply costs of fossil fuels — have tripled since the previous IMF assessment in 2020, from $0.5tn to $1.5tn in 2022.

This compares with the most recent estimates from the International Institute for Sustainable Development think-tank this week that said subsidies from G20 economies stood at $1.4tn, including investments by state-owned enterprises and loans from public finance institutions. An independent research report earlier this year put the figure at $1.8tn.

However, the IMF report found that the increase in explicit subsidies was due to temporary support measures from governments and was expected to decline. 

East Asia and the Pacific region accounted for nearly half of the global total subsidy. China was the biggest subsidiser of fossil fuels, followed by the US, Russia, the European Union and India.

G20 leaders agreed to phase out inefficient fossil fuel subsidies in 2009, before pledging to accelerate those efforts at the UN COP26 climate conference in Glasgow in 2021.

But the sharp rise in living costs and an energy crisis has since prompted governments to step in with energy price caps and fuel subsidies. 

World leaders have disappointed climate experts and campaigners in the run-up to this year’s UN COP28 conference, to be held in Dubai, where negotiators will perform a “global stock take” of progress by countries pledging to cut emissions under the 2015 Paris Agreement.

Emissions need to be cut by 43 per cent by 2030 to keep to the 1.5C warming threshold at which scientists expect irreversible changes to the planet to occur, but have continued to rise annually instead.

In May, leaders of the G7 group of advanced economies failed to set a deadline to phase out the use of coal without the emissions being captured. In the context of the full-scale Russian invasion of Ukraine, the G7 said that it “publicly supported investment in the gas sector can be appropriate as a temporary response” to the resulting energy crisis.

In the G20 climate negotiations last month, multiple negotiators told the Financial Times that China and Saudi Arabia had obstructed any progress in the talks, refusing to debate crucial issues such as greenhouse gas emissions targets.

This year has been the third-warmest ever, and may go on to surpass 2016 as the hottest on record, according to the European earth observation agency.

Simultaneous heatwaves and record flooding affected large parts of the US, Europe and Asia in July, and scientists have warned that such weather extremes will become more frequent and intense with every fraction of a degree of warming.