The IMF estimates that governments are providing a $5.3 trillion US "subsidy" to the fossil fuel sector in 2015 by failing to account for its harmful effects on the environment and human health.
Described as a "post-tax" subsidy, the figure doesn't take into account the pre-tax incentives used to encourage exploration and production, and is still much larger than ever before calculated.
Only about one quarter of the damage the IMF estimates is from climate change – the rest is from poor air quality and pollution of land and water from fossil fuels.
"The fiscal implications are mammoth: At $5.3 trillion, energy subsidies exceed the estimated public health spending for the entire globe," IMF economists Benedict Clements and Vitor Gaspar wrote in a blog post accompanying the report.
The authors suggest getting rid of this subsidy will put money into government coffers for more important efforts, such as education and health.
More than half the damage occurs in China, where human health is being affected by pollution from coal and other fossil fuels. The IMF estimates China's "post-tax" subsidy at $2.3 trillion US.
However, both advanced and developing economies are affected. Some of the biggest offenders:
- U.S. ($699 billion).
- European Union.
No specific figure is mentioned for Canada.
Coal receives the biggest "post-tax" subsidy, followed by petroleum and, at a fraction of the impact, natural gas and electricity derived from fossil fuels.
The paper suggests that the world has an unprecedented chance with today's low oil prices to reset the costs of fossil fuels to a level more in line with the damage they are doing.
It hints at carbon taxes as an efficient means of pricing in the full cost of fossil fuels.
"Environmental damages from energy subsidies are large, and energy subsidy reform through efficient energy pricing is urgently needed. While there may be more efficient instruments than environmental taxes for addressing some of the externalities, energy taxes remain the most effective and practical tool until such other instruments become widely available and implemented," the paper said.