To counter the argument made on about diesel prices, the International Monetary Fund last week published a working paper, which calculated both the direct and indirect subsidies given to fossil fuels in 2022.
The paper puts the number for 2022 at $7tn (seven trillion). That’s equal to 7.1% of global GDP in the year.
Of that $7tn (€6.46tn), $5.4tn is what is called “implicit subsidy”, which means that because governments are not charging for the environmental damage done by burning fossil fuels, they are, in effect, giving the users a free ride and therefore providing a subsidy.
For Ireland, the IMF broke the numbers down for the implicit subsidy as $0.4bn for petrol, $1.4bn for diesel, $0.9bn for gas and $2.9bn for coal.
The explicit subsidies – meaning actual measure which actually reduced the final price of a fossil fuel – for Ireland were at $0.5bn. The IMF stated that the level of explicit subsidies globally had more than doubled from $0.5tn in 2020 to $1.3tn in 2022.
The organisation said this rise was caused by governments trying to give some relief from soaring fuel prices in the wake of Russia’s invasion of Ukraine.
The paper says that coal is, globally, by far the biggest receiver of “implicit” subsidies as the environmental damage from burning the fuel is so bad.
On road fuels, the IMF says diesel does 16% more damage to air quality than petrol and so the implicit subsidy for diesel is higher.
The paper suggests that explicit and implicit subsidies on both petrol and diesel means prices are at less than 60% of levels, which take all the costs into account. That would imply a road diesel price of approximately €2.90/l.
Obviously, the whole IMF paper is little more than an exercise in adding ink to paper, as no government anywhere is about the double or triple duties on fuels.
However, it does suggest that a more efficient way for accounting for environmental emissions from petrol and diesel would be the imposition of systems (or a kilometre-based tax system) where people would be forced to pay to drive.
With increasing use of electric vehicles meaning falling fuel duties, a kilometre-based tax system might seem very tempting to policymakers.