Excellencies, Ladies and Gentlemen, Colleagues and Friends,
We all know why we are here. The science is clear. Without dramatic reductions in the use of fossil fuels, we will see untold destruction to our environment and continuing damage to people’s health and livelihoods. And the 1.5°C goal of the Paris Agreement will fall quickly out of reach.
The economics is equally clear. Getting fossil fuel prices right is key to make these reductions. The right prices must fully reflect both supply costs and environmental costs – especially carbon emissions and local air pollution.
Underpricing fossil fuel undermines domestic and global environmental objectives, hurting people and hurting the planet. It is also a badly targeted policy that predominantly benefits higher-income households and deprives governments of precious fiscal resources.
According to our new IMF staff estimates, global fossil fuel subsidies amount to around $6 trillion in 2020—this is 6.8 percent of global GDP. More than 70 percent reflects undercharging for environmental costs.
The good news is that global carbon emissions would fall by one-third—in line with keeping global warming to 1.5 degrees Celsius—if fossil fuel prices increase to fully reflect environmental and supply costs by 2025. Almost one million deaths due to air pollution would be avoided every single year. Additional revenues would rise by nearly 4 percent of global GDP – which could be used to boost green investment and social spending, and thus ensure a just transition to the new climate economy for us all.
Raising fuel prices is, of course, very challenging. I don’t want to understate how difficult it is—but doing nothing will pose far greater challenges.
The IMF staff has proposed an international carbon price floor among large emitters, set according to development levels. It would help to get the right price on fuel and accelerate global climate action. And now is the time to do it.