Katerina Swanson
The relationship between governments and the fossil fuel industry is complex and multifaceted. On the one hand, governments provide substantial financial support to the industry through various forms of subsidies and tax breaks, with the goal of promoting cheap and abundant energy for their citizens. On the other hand, the fossil fuel industry also exerts significant influence on government policies and elections, with companies contributing millions of dollars to political campaigns and committees. This exchange of money and influence creates a dynamic where the interests of the fossil fuel industry and government policies are closely intertwined. As a result, the question of how much the government benefits from the fossil fuel industry is not just about monetary gains but also the broader economic, political, and social implications of their relationship.
| Characteristics | Values |
|---|---|
| Fossil fuel subsidies in 2022 | $7 trillion |
| Fossil fuel subsidies as a percentage of global GDP in 2022 | 7.1% |
| Fossil fuel subsidies as a percentage of global income spent on education | More than 4.3% |
| Fossil fuel subsidies as a percentage of global income spent on healthcare | Two-thirds of 10.9% |
| Annual payments given directly to fossil fuel production and consumption | $1.2 to $1.5 trillion |
| Amount raised by removing explicit subsidies | $4.4 trillion |
| Amount the US fossil fuel industry received from taxpayers in 2022 | $20 billion |
| Fossil fuel election spending in 1992 | 34% to Democrats, 66% to Republicans |
| Fossil fuel election spending in 2024 | 88% to Republicans |
| Fossil fuel election spending in 2024 | $219 million |
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What You'll Learn
Fossil fuel subsidies
There are several types of fossil fuel subsidies. Explicit subsidies occur when the retail price is below a fuel's supply cost. Explicit subsidies can be found in the Middle East and North Africa (MENA), Europe, the Commonwealth of Independent States (CIS), and East Asia and the Pacific (EAP). In 2022, explicit subsidies for fossil fuels amounted to around $1.5 trillion. Global explicit subsidies for fossil fuels amounted to around $1.5 trillion in 2022, with 80% going to consumers and the rest going into fossil fuel production. Implicit subsidies are undercharging for environmental costs and forgone consumption taxes. Implicit subsidies are projected to grow as developing countries increase their consumption of fossil fuels.
The federal government provides numerous direct and indirect subsidies to the fossil fuel industry. Direct subsidies are special provisions in the U.S. tax code designed to support and reward domestic fossil fuel-related production. Indirect subsidies are provisions aimed at businesses in general and are not exclusive to the fossil fuel industry. The fossil fuel industry also receives substantial government funding for research and development, administered by the Department of Energy (DOE).
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Direct and indirect government funding
Fossil fuel subsidies are a significant source of government funding for the fossil fuel industry, with estimates ranging from hundreds of billions to $7 trillion globally. These subsidies can be categorized into explicit and implicit subsidies. Explicit subsidies directly lower the costs of fossil fuel production or consumption, while implicit subsidies refer to the societal costs associated with burning fossil fuels, such as local air pollution, climate change, road accidents, and congestion. The $7 trillion estimate includes both types of subsidies, with the implicit subsidies accounting for a larger share.
Direct government funding for the fossil fuel industry also comes in the form of tax breaks and special provisions in the tax code. For example, the U.S. tax code contains specific provisions that support and reward domestic fossil fuel-related production, providing direct subsidies to the industry. Additionally, general provisions aimed at businesses can create indirect subsidies that benefit the fossil fuel industry. The discounted cost of leasing federal lands for fossil fuel extraction is another form of direct government support.
The fossil fuel industry also receives substantial funding for research and development from governments. In the United States, federal funding for fossil fuels is primarily administered by the Department of Energy (DOE) through initiatives like the Office of Advanced Fossil Energy R&D, the Loan Guarantee Program, and the National Energy Technology Lab. Annual appropriations and grants directed towards the industry can also be considered direct subsidies as they maintain the industry's competitiveness.
Indirect government funding for the fossil fuel industry can be observed in the form of political campaign contributions. The industry has been known to exert substantial financial influence over elections, with individuals and corporations associated with the industry contributing significant amounts of money to political campaigns, committees, and outside spending groups. This allows the industry to shape policies and influence lawmakers in their favor, protecting their interests and maintaining their access to various forms of government funding.
In conclusion, the fossil fuel industry receives substantial direct and indirect government funding through various channels. Direct funding includes explicit subsidies, tax breaks, discounted land leases, and research grants. Indirect funding is provided through implicit subsidies, which externalize the societal costs of burning fossil fuels, and political campaign contributions, which grant the industry influence over policymaking. While there have been efforts to phase out explicit subsidies and transition to clean energy, the complex nature of these subsidies and the potential for social unrest due to rising energy prices create challenges in implementing reforms.
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Political donations
In the United States, the oil and gas industry has been known to donate substantial amounts of money to political campaigns. For example, during the 2024 election cycle, the industry contributed about $24 million to members of the U.S. House and Senate, with an additional $2 million going to President-elect Donald Trump's campaign. These contributions are often funnelled through political action committees (PACs) and party committees, allowing individuals to contribute significant amounts of money without directly donating to candidates.
The fossil fuel industry's influence extends beyond direct donations, with corporations and special interest groups injecting billions of dollars into the political system annually. This includes lobbying efforts, where oil and gas companies spent nearly $60 million on Republican Party members during the 2024 election cycle. The Republican Party has historically been the largest recipient of lobbying expenditures from the oil and gas industry, with spending peaking at $70 million in the 2020 presidential election year.
In Australia, the fossil fuel industry has also made substantial political donations, with discrepancies in disclosure revealing a poorly regulated political funding system. For example, in FY2022, oil and gas company Chevron disclosed $45,470 in donations to the ALP, while the ALP only disclosed $11,200 in donations from Chevron, resulting in a $1 million discrepancy across all fossil fuel company donations to the three major parties. Additionally, in FY2015-22, Woodside was the top donor to major political parties, contributing nearly $2 million.
The influence of the fossil fuel industry is not limited to one political party, with both Republicans and Democrats in the United States, and major political parties in Australia, receiving significant financial support. This highlights the industry's extensive influence on politics and policy-making in these countries.
To improve transparency, organisations like Open Secrets in the United States and Market Forces in Australia provide databases that track political donations and lobbying activities, allowing citizens to hold politicians and donors accountable for their actions and pledges.
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Energy market intervention
Energy markets have long been subject to government intervention, with subsidies being used to promote or subsidize the production of cheap fossil fuels. These subsidies have been in place for over a century in some cases, and while they may have been necessary at the time of their implementation, the circumstances are often no longer relevant. For example, the fossil fuel industry is now mature, highly profitable, and has abundant access to private financing.
The federal government provides direct subsidies to the fossil fuel industry through specific provisions in the U.S. tax code. Additionally, indirect subsidies are provided through provisions aimed at businesses in general, and the industry also benefits from the discounted cost of leasing federal lands for fossil fuel extraction. The fossil fuel industry also receives substantial government funding for research and development, as well as project loans, grants, and guarantees from institutions like the Overseas Private Investment Corporation (OPIC) and the United States Export-Import Bank (EXIM). These sources of funding are meant to support investments in emerging markets but often subsidize the expansion of the fossil fuel industry, resulting in increased greenhouse gas emissions in countries with weaker environmental regulations.
The total amount of subsidies provided to the fossil fuel industry is significant. Conservative estimates put U.S. direct subsidies at roughly $20 billion per year, with 20% going to coal and 80% to natural gas and crude oil. European Union subsidies are estimated at 55 billion euros annually. In 2023, fossil fuel subsidies surged to a record $7 trillion as governments supported consumers and businesses during the global energy price spike caused by the Ukraine war and the post-pandemic economic recovery.
However, there are growing calls to phase out these subsidies. Removing subsidies would increase government revenues, reduce fiscal spending, and help curb global warming. It would also lead to cleaner air, improved public health, and reduced environmental impacts. Scrapping subsidies would also encourage the transition to renewable energy sources, which have become increasingly price-competitive with fossil fuels.
In terms of political influence, the fossil fuel industry has spent significant amounts of money to influence U.S. elections, with a total of $219 million spent on the 2024 election, 88% of which went to Republican candidates. This money is donated by individuals and corporations to specific candidates, political action committees, and party committees. The industry has also utilized "dark money," which allows for anonymous funding of political activities and the dissemination of misinformation.
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Environmental impact
The environmental impact of government subsidies for the fossil fuel industry is significant and far-reaching. Firstly, these subsidies contribute to climate change and global warming. By making fossil fuels more affordable, governments incentivize their use, which leads to increased burning of fossil fuels and, consequently, higher emissions of greenhouse gases. This exacerbates the already dire situation of rising global temperatures, as evidenced by the World Meteorological Organization's declaration that July was the hottest month on record.
Secondly, the burning of fossil fuels also causes local air pollution, which has detrimental effects on human health. Particulates and pollutants released into the atmosphere can lead to respiratory issues, cardiovascular problems, and even premature deaths. The impact is particularly severe in areas with dense populations living and working close to pollution sources, such as power plants, factories, and vehicles.
Additionally, the fossil fuel industry is associated with road accidents and congestion. The use of fossil fuels for transportation contributes to traffic congestion, resulting in economic costs and reduced productivity. Moreover, the extraction and transportation of fossil fuels can lead to environmental disasters, such as oil spills, which have devastating consequences for ecosystems and local communities.
Furthermore, the social and economic impacts of fossil fuel subsidies cannot be overlooked. The subsidies often benefit higher-income households, perpetuating social inequalities and hindering the transition to cleaner, more sustainable energy sources. Removing these subsidies could provide funds for better targeted social spending, reductions in inefficient taxes, and productive investments that promote sustainability and equity.
Lastly, the phase-out of fossil fuel subsidies is crucial for the advancement of renewable energy technologies. Without subsidies, renewable energy sources like solar panels and onshore wind farms have become competitive with fossil fuels in most places, offering consumers a cleaner and more environmentally friendly alternative without incurring higher energy bills. However, other renewable technologies, such as geothermal and offshore wind, still require additional government support to become truly competitive.
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Frequently asked questions
The fossil fuel industry spent \$219 million to elect the new US government in 2025, according to Yale Climate Connections. The oil and gas industry gave about $24 million in campaign contributions to the members of the US House and Senate, with an additional $2 million going to President-elect Donald Trump's campaign.
The US government provides numerous subsidies, both direct and indirect, to the fossil fuel industry. While it is challenging to quantify the exact amount due to the variety of subsidies, the federal government offers special provisions in the US tax code to support and reward domestic fossil fuel-related production. The fossil fuel industry also receives substantial government funding for research and development, with the Department of Energy administering initiatives like the Office of Advanced Fossil Energy R&D and the Loan Guarantee Program.
Government subsidies for the fossil fuel industry have significant fiscal, economic, and environmental consequences. They lead to higher taxes, inefficient allocation of resources, hindering growth, and encouraging pollution. Additionally, these subsidies contribute to climate change and premature deaths from local air pollution. However, removing subsidies can be tricky, as it may lead to social unrest and increased energy costs for vulnerable households.
According to a report by the International Renewable Energy Agency, in 2017, fossil fuels garnered 70% of energy subsidies worldwide, while only 20% went to renewables. However, in the United States, the numbers are different, with half of the federal money spent on energy subsidies going to renewables from 2016 to 2022, and less than 15% to fossil fuels. Heavy subsidies for renewable energy sources like solar panels and onshore wind farms have helped make them competitive with fossil fuels in most places.
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