THE International Monetary Fund (IMF) says reforming fossil fuel subsidies is in countries’ interest, even when excluding climate benefits.

It stated this in a report, ‘IMF Fossil Fuel Subsidies Data: 2023 Update’, released on Wednesday, August 23.

A fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or reduces the price paid by energy consumers.

The Fund explained that in the average country, reforming fuel subsidies to the extent that the government reduces CO₂ (carbon dioxide) by about 25 per cent below baseline levels in 2030 would raise net welfare before even counting global climate benefits.

This could result in local environmental benefits and remove price distortions.

“Fuel price reform would avert about 1.6 million premature deaths yearly from local air pollution by 2030.

“Globally, full price reform would generate net welfare benefits of about 3.6 per cent of GDP,” the international financial institution said.

Though Nigeria’s CO₂ emissions fluctuated substantially in recent years, it tended to increase from 1972 – 2021, ending at 127 million tonnes in 2021.

Research showed that about 80 per cent of carbon emissions in Nigeria are direct consequences of fossil fuel combustion.

Put, CO₂ is a colourless, odourless gas in the atmosphere and is formed when any fuel containing carbon is burned.

Nigeria has the highest number of overall air pollution-related pneumonia deaths of children under five worldwide.

The country also has the highest number of household air pollution-related pneumonia deaths among children under five, according to a United Nations International Children’s Emergency Fund (UNICEF) report.

It showed that the deaths of Nigerian children under five due to overall air pollution-related pneumonia were 67,416 in 2019, while deaths of those under five due to household-specific air pollution-related pneumonia were 49,591 during the same year.

A member of the Britton Wood institutions, IMF said fully reforming fossil fuel prices by removing explicit fuel subsidies and imposing corrective taxes such as a carbon tax would reduce global CO₂ emissions by 43 per cent below ‘business as usual’ levels in 2030 (34 per cent below 2019 levels).

Explicit subsidies occur when the retail price is below a fuel’s supply cost.

IMF said, “Full fuel price reform would also raise substantial revenues, worth about 3.6 per cent of global GDP.

“These revenues could be used to cut more burdensome taxes such as on those labour, help with debt sustainability, or fund productive investments.

“Indeed, for developing countries as a whole, revenue gains from full price reform exceed the estimated extra spending needed to achieve the Sustainable Development Goals,” IMF said.

The ICIR reported that Nigeria’s debt currently stood above N46 trillion, and with the central bank’s ways and means to the federal government, it is approximately N70 trillion.

The latest Debt Sustainability Analysis (DSA) report has highlighted the need for more revenues to keep Nigeria’s public debt sustainable.

The recently released DSA Report, which is for the year 2022, also emphasised the need for the government to grow revenues.

Continuing, the IMF report showed that underpricing for local air pollution and global warming account for nearly 60 per cent of global fossil fuel subsidies and underpricing for supply costs and transportation externalities (such as congestion) explains another 35 per cent. In contrast, the remainder is accounted for by forgone consumption tax revenue.

It estimated that global total fossil fuel subsidies amounted to $7 trillion in 2022, equivalent to nearly 7.1 per cent of global gross domestic product (GDP).

“By fuel product, undercharging for oil products accounts for nearly half the subsidy, coal another 30 per cent, and natural gas nearly 20 per cent (underpricing for electricity accounts for the remainder).

“By region, East Asia and the Pacific account for nearly half of the global subsidy. By country, in absolute terms, China remains the biggest subsidiser of fuels, followed by the US, Russia, EU, and India,” the IMF added in the report.