Letter: IMF’s focus on pollution subsidies is misleading

Gillian Tett (“COP must lift omerta on fossil fuel subsidies”, Opinion, December 1) notes that the IMF estimates fossil fuel subsidies globally have reached $7tn, or 7.1 per cent of global gross domestic product. This is misleading because what the IMF calls subsidies are not what most people would.

Imagine a scenario where you need to get rid of household rubbish, and the disposal cost is $10, but the environmental impact if it leaks is $1,000. If you dump it in your neighbour’s drive and they must pay $10 to dispose of it, how much has your neighbour subsidised you by? $10, or $1,000? Most would say $10 because you saved $10 and your neighbour spent $10, but the IMF would say $1,000. This is where the problem lies.

Instead of subsidies, the IMF estimates environmental damages from fossil fuels. This is noble but misleading. In the IMF’s view, pollution should be taxed, which makes sense because taxes efficiently reduce pollution. The IMF therefore views untaxed pollution as subsidised.

This logic is flawed for two reasons. First, pollution is not taxed by default, so there is no subsidy from tax exemption. Second, an absence of taxes does not mean pollution is uncontrolled. According to the IMF, the US “subsidises” fossil fuels by $754bn per year by not taxing them; but this ignores the fact that Americans prefer regulations to control pollution and that pollution has fallen as a result and continues to. The IMF’s subsidy framing implies people choose to subsidise fossil fuel use and that consumers of it are enriched by pollution. This isn’t so, and it is misleading to say countries have large swaths of pollution subsidies to cut when eliminating these “subsidies” means imposing new taxes on the public.

Philip Rossetti
Senior Fellow for Energy Policy,
R Street Institute, Washington, DC, US