Investors should monitor this closely as the prospect of any reduction or even elimination of these subsidies will have a critical impact not just on fossil fuel companies but throughout the economy. It is important for investors to make sure corporate boards are considering these risks — and opportunities — in their strategic planning.
The United States has spent more subsidizing fossil fuels in recent years than it has on defense spending, according to a new report from the International Monetary Fund.
The IMF found that direct and indirect subsidies for coal, oil and gas in the U.S. reached $649 billion in 2015. Pentagon spending that same year was $599 billion.The study defines “subsidy” very broadly, as many economists do. It accounts for the “differences between actual consumer fuel prices and how much consumers would pay if prices fully reflected supply costs plus the taxes needed to reflect environmental costs” and other damage, including premature deaths from air pollution.
These subsidies are largely invisible to the public, and don’t appear in national budgets. But according the the IMF, the world spent $4.7 trillion — or 6.3 percent of global GDP — in 2015 to subsidize fossil fuel use, a figure it estimated rose to $5.2 trillion in 2017. China, which is heavily reliant on coal and has major air-pollution problems, was the largest subsidizer by far, at $1.4 trillion in 2015. But the U.S. ranked second in the world.