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FINANCE AND INVESTMENT 047“ ACCORDING TO THE FUND’S ESTIMATES, WE EFFECTIVELY SUBSIDIZED FOSSIL FUEL ENERGY TO THE TUNE OF US$5.3 TRILLION DOLLARS (6.5 PER CENT OF GLOBAL GDP) IN 2015, BY FAILING TO PROPERLY CHARGE FOR SUPPLY AND ENVIRONMENTAL COSTS”estimates, we effectively subsidized fossil fuel energy to the tune of US$5.3 trillion dollars (6.5 per cent of global GDP) in 2015, by failing to properly charge for supply and environmental costs. Myth number four is that low energy prices are a good way to help low-income households. Work at the Fund demonstrates that subsidizing energy is an inefficient way to help these households, as most of the benefits (typically 90 per cent or more) leak away to higher income groups. Targeted measures (e.g., adjustments to the tax system, stronger social safety nets) are generally a much better way to help the poor, and compensating them need only use a relatively small fraction of carbon pricing revenue. In our technical assistance we emphasize the key importance of strengthening social protection measures as countries move ahead with energy price reforms.Myth number five is that carbon taxes are the wrong instrument when countries’ pledges for COP 21 typically take the form of an emissions target (e.g., a 25 per cent emissions reduction in emissions by 2030 relative to emissions in some baseline year). Why not impose an annual cap on emissions through a trading system? The problem with these rigid caps is that, as we have seen in trading markets, they can create a lot of volatility and uncertainty over emissions prices which can deter critical investments in clean technologies. It is better to meet emissions targets on average over time with explicit and predictable emissions prices. Countries should be forecasting what future emissions prices will be needed to do this, and refining those forecasts accordingly in response to experience.It is sometimes suggested (myth number six) that carbon pricing is impractical to implement, especially in countries where environmental ministries have limited resources. There is certainly some truth to this in regard to emissions trading systems, which require monitoring of firms’ emissions and well-developed trading markets. But in our view, carbon taxes are the more natural way to price carbon, as the prices are more predictable and the tax revenues go