Katerina Swanson
Fossil fuels are detrimental to the climate and public health. The cost of fossil fuels in the United States electric power industry is about 3.12 US dollars per million British thermal units (Btu) in 2023. The cost varies depending on the source, ranging from 2.36 US dollars per million Btu for coal to 16.53 US dollars per million Btu for petroleum. The economic and health costs of air pollution from burning fossil fuels top $8 billion per day globally. Fossil fuel subsidies surged to a record $7 trillion as governments supported consumers and businesses during the energy price spike.
| Characteristics | Values |
|---|---|
| Cost of fossil fuels in the US electric power industry | $3.12 per million British thermal units (Btu) in 2023 |
| Cost range by source | $2.36 per million Btu for coal to $16.53 per million Btu for petroleum |
| Volatility of costs by source | Petroleum costs are the most volatile; coal costs have been relatively stable |
| Global fossil fuel market prices | Petroleum prices reached a peak in 2022 during the energy crisis |
| Fossil fuel subsidies | $7 trillion in 2022; projected to grow as developing countries increase consumption |
| Environmental costs of fossil fuels | Consumers did not pay for over $5 trillion of environmental costs last year |
| Health costs of fossil fuels | $8 billion per day globally in economic and health costs from air pollution |
| US health benefits of transitioning to clean energy | $978 billion by 2050 |
| US government spending on fossil fuel subsidies | $20 billion per year (conservative estimate) |
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What You'll Learn
Fossil fuel costs vs renewable energy
Fossil fuels have long been the dominant energy source, with oil and natural gas pipelines, refineries, and distribution networks entrenched worldwide. However, the tide is turning, with renewable energy sources now offering a powerful path forward for both climate mitigation and financial stability.
In 2024, 81% of new renewable energy sources offered cheaper power than fossil fuels. The global average cost of electricity from onshore wind fell to 3.3 cents per kilowatt-hour, while utility-scale solar photovoltaic fell to 4.4 cents/kWh. In contrast, fossil fuel prices rose to 10 cents/kWh in 2023. Onshore wind and solar with storage can cost as little as $0.04 per kilowatt-hour (kWh), while fossil fuels can cost up to $0.22 per kWh.
The cost of constructing renewable energy infrastructure has also dropped dramatically. The cost of solar photovoltaic (PV) electricity declined by 85% between 2010 and 2020, and wind turbine prices have dropped by 49-78% in the last decade. This has been driven by improved materials efficiency, manufacturing processes, and economies of scale.
However, there are challenges to adopting renewable energy exclusively. Firstly, renewable energy sources like solar and wind power are intermittent and rely on weather conditions. In contrast, thermal power plants using fossil fuels can generally produce power at any time, incurring only fuel costs. Renewable energy requires storage technology to make electricity available on demand, and this technology currently comes with a high upfront cost. Building transmission lines to carry electricity to customers can also be expensive, and renewable energy sources may be located further from customers, increasing transmission costs.
Additionally, fossil fuel-fired power plants remain in operation because they fulfill specific roles in electric power infrastructure, such as restoring power after a blackout and balancing the grid. Removing fuel subsidies can also be tricky, as governments must carefully design and communicate policy changes to avoid negative impacts on vulnerable households.
Despite these challenges, the transition to renewable energy is gaining momentum. The International Renewable Energy Agency (IRENA) found that nearly all US coal capacity (99%) costs more than renewable energy capacity. IRENA also estimates that power companies and their customers saved $409 billion in fuel costs from 2000 to 2023 thanks to renewables. Embracing renewable energy can help companies reduce their carbon footprints and benefit from positive public perceptions and lower operating costs.
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Impact of global events on prices
The cost of fossil fuels is subject to the volatile global fossil fuel markets, which are influenced by global events. In recent years, notable events such as the COVID-19 pandemic and Russia's invasion of Ukraine have significantly impacted energy prices.
During the pandemic, governments provided subsidies to support consumers and businesses, which contributed to the surge in fossil fuel subsidies. These subsidies, intended to cushion the financial burden during the economic downturn, reached a record $7 trillion globally. However, the true cost of fossil fuels is much higher when considering the environmental and health impacts. The burning of fossil fuels leads to air pollution, causing respiratory issues, heart disease, and premature deaths, with a global economic cost of over $8 billion per day.
The invasion of Ukraine by Russia, a major global energy supplier, caused a significant disruption to energy markets. This event, coupled with the economic recovery from the pandemic, led to a global spike in energy prices. As a result, fossil fuel subsidies surged once again, with governments providing support to cushion the impact of rising energy costs on consumers and businesses.
The extreme heat waves affecting Asia, Europe, and the United States also influence fossil fuel prices. As global warming intensifies, the demand for energy increases, driving up prices. Additionally, the strain on world oil supplies further contributes to price volatility. If oil prices reach $200 per barrel by 2030, the United States' spending on oil alone is projected to be a significant portion of its total fossil fuel costs.
Transitioning to clean energy sources can help stabilize prices and reduce the environmental and health impacts associated with fossil fuels. Removing explicit subsidies and imposing corrective taxes on fossil fuels would incentivize investment in renewable energy sources, improve public health, and contribute to global warming targets. However, removing fuel subsidies can be complex, requiring careful policy design and implementation to ensure a smooth transition and minimize the impact on vulnerable households.
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Environmental and health costs
Fossil fuels have significant environmental and health costs. Each stage of the fossil fuel supply chain, from extraction and transportation to refining and burning, generates externalities. These externalities are significant climate, environmental, and health costs that are not reflected in market prices.
Burning fossil fuels emits greenhouse gases such as carbon dioxide, which trap heat in the Earth's atmosphere and contribute to climate change. In 2019, fossil fuels accounted for 74% of US greenhouse gas emissions. The link between these emissions and climate change is clear, with increases in extreme weather like wildfires, droughts, and flooding. Oceanic and atmospheric warming due to climate change are melting glaciers and land-based ice sheets, resulting in global sea level rise. Sea levels have risen about 9 inches since the late 1800s, causing more frequent flooding, destructive storm surges, and saltwater intrusion. With 40% of the US population living along the coasts, it is estimated that defending coastal communities from sea level rise could cost $400 billion over the next 20 years.
Fossil fuels also produce hazardous air pollutants, including sulfur dioxide, nitrogen oxides, particulate matter, carbon monoxide, and mercury, all of which are harmful to the environment and human health. Air pollution from fossil fuels can cause acid rain, eutrophication, damage to crops and forests, and harm to wildlife. Globally, fossil fuel pollution is responsible for one in five deaths, with 350,000 premature deaths in the US in 2018 attributed to fossil fuel-related pollution. Burning fossil fuels releases microscopic soot particle pollution, which triggers cardiovascular disease and respiratory ailments and is estimated to cause about 107,000 premature deaths annually. Emissions from burning fossil fuels increase ozone pollution (smog), which worsens asthma and may worsen cardiovascular, metabolic, nervous system, and reproductive outcomes.
The annual cost of the health impacts of fossil fuel-generated electricity in the United States is estimated to be up to $886.5 billion. The American Lung Association reported that transitioning away from fossil fuels to clean energy could have public health benefits totaling $978 billion in the United States by 2050.
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Fossil fuel subsidies
The cost of fossil fuels in the United States electric power industry varies depending on the source that is used. In general, fossil fuels cost about $3.12 per million British thermal units (Btu) in 2023, ranging from $2.36 per million Btu for coal to $16.53 per million Btu for petroleum. On the other hand, renewable energy sources like onshore wind and solar with storage can cost as little as $0.04 per kilowatt-hour (kWh), while fossil fuels can cost up to $0.22 per kWh.
The total cost of fossil fuel subsidies varies depending on the definition and methodology used for estimation. In 2022, global explicit subsidies for fossil fuels amounted to around $1.5 trillion, equivalent to about 1.5% of global gross domestic product (GDP). However, under a broader definition that includes implicit subsidies, the total subsidies were estimated to be as high as $7 trillion, reflecting a $2 trillion increase since 2020 due to government support during the energy price surge. These implicit subsidies are expected to grow as developing countries increase their consumption of fossil fuels.
Removing fossil fuel subsidies can be challenging due to concerns about the impact on vulnerable households and energy security. However, it is crucial to phase out these subsidies gradually and implement comprehensive policy reforms to promote a healthier and more sustainable planet. Scrapping explicit and implicit fossil fuel subsidies could prevent premature deaths, increase government revenues, and help achieve global warming targets.
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Cost of transitioning away from fossil fuels
The cost of transitioning away from fossil fuels is a complex issue that involves economic, social, and environmental factors. While the transition to renewable energy sources is crucial for addressing climate change, there are challenges and costs associated with this shift.
Firstly, the economic costs of transitioning away from fossil fuels are significant. Fossil fuels have been the backbone of the global energy system for decades, and transitioning to renewable energy requires substantial investments. For example, the deployment of CO2 management technologies, such as carbon capture and storage (CCS), carbon capture, utilization, and storage (CCUS), and green hydrogen, comes with high upfront costs and uncertain returns. Additionally, removing fossil fuel subsidies, which totalled a record $7 trillion globally in recent years, would lead to higher energy prices for consumers, requiring careful policy design and implementation to protect vulnerable households.
However, it is important to note that the costs of continuing to rely on fossil fuels are also significant. The environmental and health costs of air pollution from burning fossil fuels top $8 billion per day globally. Transitioning to clean energy sources could bring substantial public health benefits, estimated at $978 billion in the United States by 2050. Additionally, renewable energy sources like wind and solar have become increasingly cost-competitive with fossil fuels. Onshore wind and solar with storage can cost as little as $0.04 per kilowatt-hour (kWh), while fossil fuels can cost up to $0.22 per kWh. Phasing out coal plants in favor of wind and solar could generate $589 billion in new investment across the United States.
The transition away from fossil fuels also presents social and economic challenges. A "just transition" aims to protect the rights and interests of workers and communities who may be negatively impacted by the shift away from fossil fuels. This includes ensuring that the transition does not disproportionately harm ordinary people, especially those in vulnerable communities. Additionally, there are technical challenges to transitioning away from fossil fuels, particularly in the transportation sector. Renewable energy sources often produce electricity, which can be a challenge for industries that rely on fossil fuels, such as aviation and heavy industry. The development of alternatives, such as electric vehicles, biofuels, and green hydrogen, is ongoing but still faces technological and cost barriers.
Overall, the cost of transitioning away from fossil fuels is multifaceted and requires a comprehensive approach that addresses economic, social, and environmental considerations. While there are challenges and costs associated with the transition, the potential benefits, including reduced environmental and health impacts and increased investment in renewable energy sources, are significant.
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Frequently asked questions
Fossil fuels can cost up to $0.22 per kWh.
The intangible costs of fossil fuels include the environmental and health costs associated with their use. Fossil fuels are a major contributor to air pollution, which has been linked to various health issues such as respiratory problems, heart disease, and premature deaths. The environmental costs of fossil fuels are often not reflected in their prices, and governments provide explicit and implicit subsidies to the fossil fuel industry, which further lowers the cost for consumers.
Fossil fuel subsidies have surged to a record $7 trillion annually, which is more than governments spend on education and almost two-thirds of what they spend on healthcare. These subsidies are projected to grow as developing countries increase their consumption of fossil fuels.
Renewable energy sources such as onshore wind and solar with storage can cost as little as $0.04 per kWh, which is significantly cheaper than fossil fuels. Additionally, the cost of constructing new renewable energy installations has decreased dramatically in recent years, making them even more cost-competitive with fossil fuels.
