Challenging the widely-held view that fossil fuel subsidies benefit the poor, the UN has asked for cutting back on such mechanisms to curb greenhouse gas emissions and propel economic growth.
The report by the United Nations Environment Programme (UNEP) argues that many of these subsidies benefit wealthier segments of society and hardly benefit the poor.
Some $300 billion or 0.7 per cent of global GDP is spent to support the price of energy annually, and most of these funds, diverted from national funds to help the poor, are used to lower the real prices of fuel, coal, gas and electricity generated by fossil fuels.
Eliminating these price support systems could slash emissions by up to 6 per cent a year while providing a 0.1 per cent GDP boost worldwide, the report contends.
While acknowledging that subsidies can at times generate social, financial and environmental benefits, it also underlines that many of these mechanisms are seldom economically sound and hardly ever tackle poverty.
"In the final analysis many fossil fuel subsidies are introduced for political reasons but are simply propping up and perpetuating inefficiencies in the global economy they are thus part of the market failure that is climate change," UNEP Executive Director Achim Steiner said.
The report, "Reforming Energy Subsidies: Opportunities to Contribute to the Climate Change Agenda," was released yesterday.