The true cost of fossil fuels

Six major European energy companies have called on policymakers to put global carbon pricing on the agenda at United Nations climate talks in Bonn this week. They describe this as the most effective way of encouraging greener investments.

But as a growing movement shows, putting a price on fossil fuels could also provide a solution to the increasingly visible problem of their costs falling to taxpayers.

According to a working paper by the International Monetary Fund entitled How Large are Global Energy Subsidies?, governments spend far more than previously thought on propping up the fossil fuel industry. The lion's share of "subsidies" are paid out in the form of external costs relating to health and environmental damage.

In 2013, "post-tax subsides" - or external costs relating to the environmental and social impacts of fossil fuels - amounted to some $4.9 trillion (4.4 trillion euros), or 6.5 percent of global gross domestic product. This is more than all global spending on healthcare. And, that figure is projected to rise to $5.3 trillion dollars in 2015.

The authors found that the biggest externalized costs related to exposure to air polluted with particulate matter, sulfur dioxide and nitrogen oxides by the burning of fossil fuels. These health damages amounted to around $2.2 trillion in 2013 - with the highest share going to coal-fired power, which was responsible for $1.9 trillion.

The IMF researchers also factored traffic congestion, accidents and road damage into their calculations.

Immediate impacts

Around the world, researchers and campaigners are putting increasing emphasis on the social impacts of fossil fuels.

"When we think about climate change, we usually think about distant impacts - in far-away places, and perhaps 20 or 30 years down the line," Jonathan Buonocore, of the Harvard T.H. Chan School of Public Health, told DW. "Focusing on the co-benefits for health shows that policies to reduce carbon dioxide emissions have a much more immediate impact."

Buonocore is one of the authors of a recent paper published in "Nature Climate Change," which found proposed legislation to cut emissions from coal-fired power plants in the United States could save 3,500 lives a year.

The study evaluated three possible options for new regulation of power plants, which have yet to be finalized under President Barack Obama's Clean Power Plan. The researchers said the best of these outcomes could also avert more than 1,000 heart attacks and hospitalizations from air pollution-related illness each year.

Doctors speak out

The medical profession is also speaking out on the issue. This April, the International Federation of Medical Students' Associations called on charities to divest from the fossil fuel industry, saying that "continued investment in the fossil fuel industry violates health workers' obligations to do no harm."

The British Medical Association committed to divesting from the sector in July last year. And last week, Auckland University announced - as part of the run-up to UN climate talks later this year - how medical professionals and students are calling for the New Zealand government not stop ignoring health benefits when calculating the costs of climate action.

The Ontario Clean Air Alliance says much credit for the province's phase-out of coal, which was completed last year, is due to the Ontario Medical Association's damning assessments of the health impacts of air pollution, which it estimated to cost Ontario $1 billion per year.

"The myth that coal was a source of 'cheap power' was destroyed by the most credible possible source - your doctor," the Alliance said in a report.

Hidden costs

Keiran Clarke of the International Institute for Sustainable Development says that drawing attention to the social costs of what can appear to be a cheap option for power generation, such as coal, can have a bigger impact on policy than focusing on environmental damage.

"I think that governments are quite rational about this," he told DW. He cited the example of China, where he says the government may not be highly motivated to prevent climate change - but is turning toward renewable power over coal to combat the ongoing problem of air pollution.

The IMF paper found that the majority of indirect energy subsidies for fossil fuels came in the form of domestic spending. It recommended that countries "move ahead with subsidy reform unilaterally and in their own interests."

"Our estimates indicate that removing post-tax energy subsidies could reduce premature deaths from local air pollution by more than 50 percent on average," the report said.

Subsidy reform

Cutting these subsidies would steer investment towards environmentally friendly technologies, by removing the artificial price advantage of fossil fuels. At the same time, the paper suggests, money saved could be used to cut labor taxes, invest in public infrastructure and education, and reduce poverty.

In Germany, renewables now cover more than a quarter of electricity use. But according to the German Environment Agency's latest calculations, its continuing dependence on coal cost the country $23 billion in 2014.

If these costs were taken into consideration, then the price of electricity produced using coal would more than double the current cost of 90 cents per kilowatt-hour, and no longer be competitive compared to electricity from wind and solar.

Subsidy reform could also reduce global CO2 emissions by more than 20 percent, according to the IMF. The analysis concluded this would be "very significant and would represent a major step towards the decarbonization ultimately needed to stabilize the global climate system."