The IMF has done an extensive study covering 191 countries calculating the efficient price of fossil fuels and the resultant subsidies. Their definition of subsidies is the difference between the efficient price (with all the externalities) of a given fossil fuel and the actual price of that fuel times the amount of the fuel used. Like other studies they found the actual fuel prices to be much lower than the efficient fuel prices, and thus subsidies to be substantial (6.5 percent of world GDP) and pervasive (in all countries) in 2017.
The IMF has analyzed the factors contributing to the subsidies, "by component, underpricing for local air pollution is still the largest source (48 percent in 2015) while that of global warming is similar to earlier estimates (24 percent).” (IMF 2019). The damage due to local air pollution is roughly twice that of global warming. Indeed, we know more and have gathered more data on local air pollution, and perhaps we are underestimating damages of global warming; however, local air pollution is widespread and horrendous.
Air pollution mortality is caused by persons inhaling or ingesting ambient particulate matter with diameter up to 2.5 micrometers, which is fine enough to penetrate the lungs and bloodstream. This particulate matter can be emitted directly from fuel combustion or formed indirectly from atmospheric reactions with sulfur dioxide or nitrogen oxides. High concentrations of particulate matter increase the prevalence of four fatal illnesses: strokes, chronic obstructive pulmonary disease, ischemic heart disease, and lung cancer.
Outdoor air pollution from fossil fuels caused 4.2 million deaths, and indoor air pollution is estimated at 2.9 million in 2015, for a total of 7 million deaths a year (IMF 2019). In contrast, traffic accidents kill 1.3 million a year. (Harari 2019). For this magnitude of illness and death, the health costs associated with local air pollution from fossil fuels are enormous.
Since global climate sustainability and improving local air quality due to fossil fuels pollution have a common objective in reducing fossil fuel emissions, we may look at their combined impact. Reducing these emissions has a rapid effect on the number of deaths, diseases, and overall health in just several years, whereas climate improvements will come in the order of decades. Thus the benefits are complementary, which is very important also from an economic point of view.
In fact, in the simulation that the IMF performs on reducing the subsidies (introducing fully efficient fuel prices) in 2015 results in net economic benefits (environmental benefits minus economic costs) equal to 1.7 percent of world GDP. Tax revenues are higher by 3.8% of GDP by 2018.
For every kilogram of carbon dioxide saved by a reduction in local air pollution from fossil fuels, there is the same positive impact on the climate as a similar reduction by any other carbon dioxide removal in climate improvement. The extra benefit in the decrease in local pollution is the greater amount of particulate matter removed. Typical actions for improving local air pollution include the closure of coal and other fossil fuel power plants, reduction in the use of diesel cars and trucks, minimizing traffic congestion, using fewer automobiles in high-density urban areas, and removing or limiting housing near major roads.
In the selection of actions for climate improvement we should give priority to those that reduce the suffering of persons exposed to harmful local air quality from burning fossil fuels; for instance, favoring the reduction of diesel (gas oil) in alternative to gasoline motorization. Consulting with local air quality experts will help better define our choices. We have a moral obligation to help stop the deaths of seven million persons each year and safeguard the planet’s climate.
Harari 2019, 21 Lessons for the 21st Century (English Edition).
IMF 2019, May 2019, IMF Working Paper Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-level Estimates.