Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer

Between directly lowered prices, tax breaks, and the failure to properly price carbon, the world subsidized fossil fuel use by over $1.9 trillion in 2011 — or eight percent of global government revenues — according to a study released this week by the International Monetary Fund.

The biggest offender was by far the United States, clocking in at $502 billion. China came in second at $279 billion, and Russia was third at $116 billion. In fact, the problem is so significant in the U.S. that the IMF figures correcting it will require new fees, levies, or taxes totaling over $500 billion a year, or more than 3 percent of the economy.

The most significant finding is that most of the problem — a little over $1 trillion worth — is the failure to properly price carbon pollution. Global warming is the ultimate example of a “negative externality” — a market failure in which one market actor enjoys the benefits of an exchange while another actor pays the costs.

When we burn gasoline to power our cars or coal-fired electricity to run our homes, we enjoy the benefits of that energy use. But someone else — a farmer facing increased drought, coastal populations facing rising seas, or the global poor facing food supply disruptions — shoulders the burden of the added carbon pollution we’re dumping into the atmosphere. It’s the global ecological equivalent of tapping into your neighbor’s electrical wiring so that they wind up paying your utility bill.

The world’s advanced economies consume huge levels of fossil fuels, so the failure to properly build pollution costs into the consumer price of fossil fuel use — through a carbon tax or cap-and-trade-style system, or some other policy — is what makes these economic giants the biggest contributors to worldwide fossil fuel subsidies. Emerging and developing economies in Asia (which mainly means China) come in a decent second. “Pre-tax” subsidies, which are breaks built into the tax code along with other policies, contributed another $480 billion, mostly from countries in the Middle East and North Africa. The pre-tax subsidies of the advanced countries were negligible.

Finally, lots of countries have a national consumption tax called a VAT (or value added tax), and often offer breaks through it for energy purchases. The IMF had to calculate those separately for methodological reasons, and found they contributed several hundred billion dollars more, again largely from the advanced countries.

It’s worth noting that western Europe has an (admittedly troubled) carbon pollution reduction program, so the big externality subsidy created by the advanced economies can likely be blamed mostly on the United States.

In calculating the value of the externalities subsidy, the IMF assumed the global warming damages of carbon emissions at $25 per ton. They then went through the policies of various countries to see who is and isn’t making an attempt to work that price back in through taxation, and to what extent. But the report notes that various studies have pegged the price as high as $85 per ton — and other studies have put it much higher than that — in which case the size of the externality subsidy would be much larger. Beyond global warming, the IMF also attempted to account for other externalities, particularly the pollution and health effects of coal burning.

All told, the analysis found that eliminating all externality subsidies entirely would reduce carbon dioxide emissions as much as 13 percent, along with having lots of positive ripple effects by reducing fossil fuel demand and increasing investment and jobs in clean energy.

As for pre-tax” subsidies, they run the gamut from actual tax breaks for purchasing energy, to entire countries that, because they’re big oil exporters, sell petroleum to their own citizens at artificially low prices. The IMF compared the international price for petroleum products (adjusted for transport and retail costs) to the domestic consumer price in 176 countries between 2000 and 2011. The gap between the two was the effect of the subsidies. They did the same for natural gas, using 37 countries, and for coal, using 39 countries, between 2007 and 2011. Various other methods were used to fill in the gaps and do the same for electricity prices.

All told, these policies subsidized fossil fuels to the tune of $480 billion in 2011. Countries in the Middle East and North Africa contributed nearly half of that, with Central and Eastern Europe and the emerging and developing countries in Asia making up most of the rest.

What’s especially damaging is that a lot of the major contributors here spend more on pre-tax subsidies to fossil fuels, as a share of their economy, than they spend on their public health systems or public education. Brad Plumer at the Washington Post notes that Egypt “regularly spends up to 8 percent of its GDP subsidizing fossil fuels – more than it spends on education and public health combined – while running budget deficits of around … 8 percent of GDP.” Since many of these countries are developing with large impoverished populations, that kind of crowding out of public health spending and investments is a big deal.

The IMF also calculated that if pre-tax subsidies in all non-OECD countries were phased out, prices for crude oil, natural gas, and coal would drop 8 percent, 13 percent, and one percent in 2050, respectively. Removing all pre-tax subsidies worldwide would reduce global greenhouse gas emissions by as much as two percent.

One last thing to note is how this problem plays out in terms of global inequality. The IMF found that most of these subsidies benefit the upper class: In low and middle income countries, the richest 20 percent of households captured 43 percent of the subsidy benefits, on average. For gasoline subsidies specifically, they captured a whopping 61 percent.

That doesn’t mean eliminating these subsidies won’t hurt poorer households. Because their incomes are so much lower, losing those subsidies can take a significant bite out of their resources, even if the share of the benefits they’re getting is a small portion of the total value of those subsidies. What it does mean is that these countries could help the poor much more efficiently by eliminating the energy subsidies and then just providing direct assistance to people in need.

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National Security Brief: Number Of Military Suicides Hit Record High

The Washington Post reports that “the U.S. military lost more service members to suicide than combat last year as the number of troops who took their lives rose to a record high.” Nearly 350 active duty servicemembers committed suicide last year while 229 troops were killed in combat in Afghanistan, according to the Post. The AP reported last June that military deaths from suicide outnumbered combat deaths by a 2-to-1 ratio. A month after the AP report, a Pentagon-funded study reported for the first time, scientific data pointing to “intense psychological suffering and pain” as the main cause of military suicides.

In other news:

The New York Times reports: Nearly three years ago, a leader of the Muslim Brotherhood delivered a speech urging Egyptians to “nurse our children and our grandchildren on hatred” for Jews and Zionists. In a television interview around that time, the same leader described Zionists as “these bloodsuckers who attack the Palestinians, these warmongers, the descendants of apes and pigs. That leader, Mohamed Morsi, is now president of Egypt — and his comments may be coming back to haunt him.”

Defense Secretary Leon Panetta on Monday pledged American assistance to the French in its campaign to root out extremist militants in Mali.

The Pentagon says that it has improved its most lethal bunker busting bomb, which is now capable of “effectively prosecuting selected hardened, deeply buried targets.”

The Washington Post reports: “Rape has become a “significant and disturbing feature” of the war in Syria, one that many refugees cite as their leading reason for fleeing the country, according to a report released Monday by a New York-based humanitarian organization.” Meanwhile, Syrian warplanes have killed dozens of civilians, including 20 children, in the last few days of bombing Damascus suburbs.

A Washington think tank reported this week that Iran is on track to produce enough material for at least one nuclear bomb by the middle of 2014.

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Number Of ‘Working Poor’ Families Grows By 200,000

According to a new report, the number of families calssified as “working poor” — meaning they live in poverty despite the parents being employed — grew by 200,000 in 2011 (the latest data available from the Census Bureau). The Working Poor Families Project found that 10.4 million families live near poverty:

The result is 200,000 more such working families – the so-called “working poor” – emerged in 2011 than in 2010, according to the report, based on analysis of the most recent U.S. Census Bureau data.

About 10.4 million such families – or 47.5 million Americans – now live near poverty, defined as earning less than 200 percent of the official poverty rate, which is $22,811 for a family of four.

Overall, nearly one-third of working families now struggle, up from 31 percent in 2010 and 28 percent in 2007, when the recession began, according to the analysis.

“As the economy has improved one would expect that the benefits of that improvement would to some extent tie to these low-income families, and we’d see a decrease or at least a stabilization in the numbers,” said the report’s co-author, Brandon Roberts. “But the reality, the data show that the benefits of — even though it’s modest economic growth — it’s not going to these low-income families.” Overall, the poverty rate stabilized in 2011, despite analysts’ predictions that it would rise.

The number of Americans living in extreme poverty is up by 50 percent since 2000. Just three other countries in the developed world (Mexico, Chile, and Turkey) have a higher rate of child poverty than the U.S.

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Number of new drugs picks up in Europe and U.S.

* EU agency sees more new drug applications in 2013

* U.S. new drug approvals running at eight-year high

* Encouraging signals for industry as patent losses peak

LONDON, Dec 18 (Reuters) - The number of new medicines approved or pending approval is on the rise on both sides of the Atlantic, painting an encouraging picture for the global drugs industry as it emerges from a wave of patent expiries.

European regulators said on Tuesday that they expect an increase in new drug applications to about 54 in 2013. In the United States, a total of 34 new drugs have been approved for sale so far in 2012 - the highest level in eight years.

The sector badly needs a pick-up in productivity as companies try to refill their medicine chests after a wave of patient expiries that have peaked this year, depriving leading U.S. and European drug companies of more than $30 billion of revenue.

"It bodes well," said Standard & Poor's (S&P) analyst Olaf Toelke, who predicts that strong pipelines will allow most large drugmakers to emerge unscathed from the spike in sales losses.

"It shows that companies are addressing the need to find new drugs to replace those facing patent expiration. They have done their homework and it looks as if the industry will be at least stable in future and not fall off the threatened patent cliff."

The U.S. Food and Drug Administration (FDA), gatekeeper to the world's biggest pharmaceuticals market, still has just over a week to add more approvals to this year's tally - and there are signs that the number will increase further.

Three new products for leukaemia, anthrax and Cushing's disease from Ariad Pharmaceuticals, GlaxoSmithKline and Novartis were approved last Friday alone, and the FDA is scheduled to hand down decisions on a further four drugs before the end of the month.

FEWER GENERICS

A green light for all these would take the 2012 tally of new molecular entities (NMEs) approved by the agency's Center for Drug Evaluation and Research to 38 - two more than the 2004 total of 36.

The European Medicines Agency painted a different picture of improving productivity by announcing that its work programme for the year ahead included a forecast for 54 new drug applications, up from 52 in 2012, 48 in 2011 and 34 in 2010. These figures exclude medicines designated for "orphan", or rare, diseases.

Significantly, the London-based agency is also expecting a sharp drop in the number of applications from companies to sell generic versions of drugs, to 20 in 2013 from 39 in 2012, given the slowdown in patent expiries next year.

Major U.S. drug companies will lose a total of about $21 billion in revenue this year from lucrative medicines coming off patent, while the hit for European businesses is about $10 billion, according to S&P.

This year's expiries have included Sanofi and Bristol-Myers Squibb's heart drug Plavix and AstraZeneca's antipsychotic Seroquel.

Winning approval from regulators, however, is only part of the battle for drugmakers.

Investors will also be watching closely to see how the new drugs perform commercially once they reach the market, since securing payment for innovative medicines is an increasingly tough fight - especially in austerity-hit Europe.

An analysis by Deloitte and Thomson Reuters this month found that while new drug approvals were increasing, this was offset by lower expected revenues from many individual products.

(Editing by David Goodman)

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