IMF says fossil fuel companies are benefitting from global subsidies of £3.4tn a year

Fossil fuel companies are benefitting from global subsidies of $5.3tn (£3.4tn) a year, equivalent to $10m for every minute of every day, according to a startling new estimate by the International Monetary Fund.

The IMF calls the revelation “shocking” and says the figure is an “extremely robust” estimate of the true cost of fossil fuels. The $5.3tn subsidy estimated for 2015 is greater than the total health spending of all the world’s governments.

The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas. These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change.

Nicholas Stern, an eminent climate economist at the London School of Economics, said: “This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”

Lord Stern said that even the IMF’s vast subsidy figure was a significant underestimate: “A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.”

The IMF, one of the world’s most respected financial institutions, said that ending subsidies for fossil fuels would cut global carbon emissions by 20%. That would be a giant step towards taming global warming, an issue on which the world has made little progress to date. Ending the subsidies would also slash the number of premature deaths from outdoor air pollution by 50% – about 1.6 million lives a year. Furthermore, the IMF said the resources freed by ending fossil fuel subsidies could be an economic “game-changer” for many countries, by driving economic growth and poverty reduction through greater investment in infrastructure, health and education and also by cutting taxes that restrict growth.

Another consequence would be that the need for subsidies for renewable energy – a relatively tiny $120bn a year – would also disappear, if fossil fuel prices reflected the full cost of their impacts. David Coady, the IMF official in charge of the report, said: “When the [$5.3tn] number came out at first, we thought we had better double check this!” But the broad picture of huge global subsidies was “extremely robust”, he said. “It is the true cost associated with fossil fuel subsidies.”

Meanwhile, the University of Oxford has ruled out future investments in coal and tar sands from its multi-billion pound endowment, but said it would not divest from all fossil fuels as demanded by thousands of students, academics and alumni. Campaigners welcomed the move as a victory for the fast-growing fossil fuel divestment campaign, as it was the first time the university had made clear its position on the issue. “Many world leaders have studied under Oxford University’s spires,” said Andrew Taylor, at campaign group People & Planet. “They should be taking notes today. The lesson is: it’s time to phase out coal and axe tar sands.” The university follows over 200 other organisations who have banned some investments in fossil fuels because of their role in driving climate change.

However, Oxford University said it does not hold any direct investments in coal and tar sands and its announcement contained little on new investment policies. The university’s failure to commit to divestment from all fossil fuel companies means 70 alumni, including green energy entrepreneur Jeremy Leggett and journalist George Monbiot, will be handing back their Oxford University degrees.