DUBAI: Reducing fossil fuel use is key to environmental protection and the key to making these reductions is to get fossil fuel prices right, the IMF chief Kristalina Georgieva has said.
She told an energy summit at the UN General Assembly that without “dramatic” reductions in the use of fossil fuels, there will be “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,” she said.
Georgieva said the “right prices” must fully reflect both supply costs and environmental costs – especially carbon emissions and local air pollution.
According to new IMF staff estimates, global fossil fuel subsidies amount to around $6 trillion in 2020, which is 6.8 percent of global GDP. More than 70 percent reflects undercharging for environmental costs.
“Underpricing fossil fuel undermines domestic and global environmental objectives, hurting people and hurting the planet,” she said and added that underpricing is also a “badly targeted policy” that predominantly benefits higher-income households and “deprives governments of precious fiscal resources”.
“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,” she said.
The good news, Georgieva said, 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,” she said.