With politicians around the world carefully avoiding the subject of climate change, financial institutions have become some of the most inventive thinkers about the most pressing subject facing humanity today.
Just a couple of days ago, the IMF released a report claiming that fossil fuels are “mis-priced” by $1.9 trillion. “Mis-priced” in this case means “subsidized” to the tune of $1.9 trillion. However, this analysis will prove controversial because $1.4 trillion of the “subsidies” result from a failure to levy taxes for the environmental damage done by burning fossil fuels. The report estimates the value of that damage to be $25/ton of carbon dioxide produced. As can be expected, the most profligate energy producers and users are the ones who are most deeply “subsidizing” fossil-based energy production. Levying appropriate taxes, according to IMF, would cut world production of GHGs by 13%.
Close to another half a trillion dollars in subsidies comes directly from governments to consumers, to cut the cost of fuels and power. The MENA nations in particular have a history of this sort of subsidy. Another 2% could be cut from GHG emissions by removing these subsidies, according to IMF, but most probably only through wrenching change for those countries’ poorest citizens.
I believe that the IMF is correct that correct pricing of the full impact of using fossil fuels is the best way to reduce GHGs fast. However, and regrettably, an international consensus on carbon pricing is a long way in the future.
Put more simply, politicians will not lead on this issue, and institutions like the IMF can act only as think-tanks. Populations become ever more detached from the problems they will face, and the focus shifts from mitigation of climate change effects to finding ways to live with them. What a shame.