Sylvie Willis
Fossil fuels are an expensive business. In the US, consumers and businesses spend between $700 billion and $1 trillion on coal, oil and natural gas annually, and that's without considering the incalculable health and environmental costs of pollution from fossil fuels. The price of electricity rose at double the rate of inflation last year, and the costs per kilowatt-hour jumped by 14.3% from 2021. Fossil fuels can cost up to $0.22 per kilowatt-hour, whereas renewable energy sources such as onshore wind and solar can cost as little as $0.04 per kilowatt-hour. Fossil fuel prices are also volatile, subject to the whims of the global market, and vulnerable to global events such as the pandemic and the war in Ukraine. In contrast, the sun, wind and hydropower are free, and the cost of constructing renewable energy sources has dropped dramatically in recent years.
| Characteristics | Values |
|---|---|
| Fossil fuel costs in the US electric power industry | About $3.12 per million British thermal units (Btu) in 2023 |
| Range of costs | From $2.36 per million Btu for coal to $16.53 per million Btu for petroleum |
| Fossil fuel costs for US consumers and businesses | $700 billion to $1 trillion each year |
| Fossil fuel emissions impact on health | 50,000 premature deaths each year |
| Fossil fuel emissions impact on the environment | Increased wildfires, droughts, and flooding |
| Fossil fuel emissions impact on specific demographic groups | Asian American, African American, and Latino residents in the Northeast and Mid-Atlantic regions are exposed to substantially more air pollution |
| Fossil fuel emissions impact on infant mortality | Increased infant mortality |
| Fossil fuel emissions impact on the nervous system | Damages the nervous system |
| Fossil fuel mining quantities | Billions of tonnes of fossil fuels mined each year |
| Low-carbon energy mining quantities | Hundreds to thousands of times lower than fossil fuel mining |
| Low-carbon energy mining projection for 2040 | 28 million tonnes |
| Fossil fuel costs compared to renewable energy | Fossil fuels can cost up to $0.22 per kilowatt-hour (kWh) |
| Renewable energy costs | Onshore wind and solar with storage can cost as little as $0.04 per kilowatt-hour (kWh) |
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What You'll Learn
Fossil fuel costs for US electricity generation
Fossil fuels are a major source of electricity generation in the United States, and their costs can vary depending on several factors. The US spent between \$700 billion to \$1 trillion on coal, oil, and natural gas in 2022, and the price of fossil fuels per million British thermal units ranged from $2.4 to $16.5. Fuel costs are a significant component of electricity generation expenses, and fossil fuels are among the most expensive sources, along with biomass.
Capital costs for fossil fuels are also a factor, with coal plants requiring higher upfront investments than gas and oil power stations. Additionally, the environmental and health costs of fossil fuels are substantial. Pollution from fossil fuels has severe consequences for public health, with poor air quality leading to respiratory issues, increased risk of cardiovascular and pulmonary diseases, and higher infant mortality rates. The use of fossil fuels also contributes to climate change, with transportation being the largest source of heat-trapping emissions in the US.
To address these issues, there have been calls for reducing dependence on fossil fuels and transitioning to cleaner energy sources. A 2007 analysis estimated that the US could reduce its emissions by 1.2 billion metric tons of carbon dioxide annually by investing in clean energy, resulting in economic and environmental benefits. Additionally, the deployment of low-carbon energy sources requires significantly less mining compared to fossil fuels, with tens to hundreds of millions of tonnes of minerals needed for the energy transition.
While the cost of fossil fuels for electricity generation in the US can be quantified in monetary terms, the environmental and health impacts have far-reaching consequences that are challenging to measure precisely. The transition to cleaner energy sources is crucial not only for economic gains but also for mitigating the detrimental effects of fossil fuels on public health and the environment.
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Fossil fuel health and environmental costs
Fossil fuels have significant environmental, health, and economic costs. In the United States, transportation is the largest source of heat-trapping emissions, with passenger cars and light-duty trucks contributing 57% of the country's total transportation emissions in 2022. Fossil fuels also have a disproportionate impact on communities of color and low-income communities, with Black and Hispanic Americans exposed to significantly more air pollution than other demographic groups.
The burning of 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, with nearly 25% coming from fossil fuels extracted from public lands. The absorption of carbon dioxide by the ocean leads to ocean acidification, which has already altered the ocean's chemistry.
The health impacts of fossil fuel-generated electricity in the US are significant, with an estimated annual cost of up to $886.5 billion. Fossil fuels produce hazardous air pollutants, including sulfur dioxide, nitrogen oxides, particulate matter, carbon monoxide, and mercury, which have harmful effects on human health. These pollutants can cause respiratory ailments such as asthma and bronchitis, increase the risk of cardiovascular and pulmonary diseases, and lead to cancer. 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.
Additionally, oil spills from fossil fuel extraction, transportation, and refining can have devastating consequences for communities, wildlife, and the environment. The 2010 BP Deepwater Horizon spill in the Gulf of Mexico, for example, resulted in 11 human deaths and significant harm to marine life, costing BP $65 billion in penalties and cleanup costs.
The economic arguments for fossil fuels are also questionable. While American consumers and businesses spend roughly $700 billion to $1 trillion annually on coal, oil, and natural gas, the true costs are much higher when considering the externalities, such as the health and environmental impacts. New renewable capacity already costs less than new gas capacity, and renewables are projected to become cheaper than fossil gas in the coming years. Investing in clean energy can bring economic savings and reduce emissions. The transition to low-carbon energy will require mining millions of tonnes of minerals, but this is still far less than the billions of tonnes of fossil fuels mined each year.
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Fossil fuel mining quantities
Fossil fuels are a finite resource, and the world is currently mining billions of tonnes of them every year. In 2023, it was estimated that the world produces the equivalent of 15 billion tonnes of coal, oil and gas annually.
In contrast, mining quantities for low-carbon energy are hundreds to thousands of times lower. The International Energy Agency (IEA) projected that in 2040, 28 million tonnes of minerals would be needed to meet the world's energy demands under a "Sustainable Development Scenario", assuming a fast deployment of low-carbon energy.
The transition to low-carbon energy will require a significant increase in mineral extraction. However, it is important to note that the energy transition will reduce total energy requirements, and the amount of rock moved to access these minerals is not included in the aforementioned estimates.
The costs of continuing to rely on fossil fuels are steep. In the United States, consumers and businesses spend roughly $700 billion to $1 trillion each year on coal, oil and natural gas. Fossil fuels are also subject to volatile global markets, with prices fluctuating in response to global events. For example, the cost of electricity rose at double the rate of inflation last year, and costs per kWh jumped 14.3% from 2021.
In addition to the economic costs, there are significant environmental and health costs associated with fossil fuel use. Burning fossil fuels releases greenhouse gases and other forms of pollution, including particulate matter, which can cause respiratory problems, heart disease, and premature births. Fossil-fuelled passenger cars and light-duty trucks in the US contributed to 57% of the country's total transportation emissions in 2022.
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Fossil fuel vs renewable energy costs
Fossil fuels are a leading cause of pollution, inflicting nearly irreversible damage to the planet, as well as the land and water where they are extracted. In the US, transportation is the largest source of heat-trapping emissions, with fossil-fuelled passenger cars and light-duty trucks contributing 57% of the country's total transportation emissions. Poor air quality increases respiratory ailments and the risk of death from cardiovascular and pulmonary diseases, as well as cancer. The health, environmental, and economic costs of fossil fuels are steep, with American consumers and businesses spending roughly $700 billion to $1 trillion each year on coal, oil, and natural gas, in addition to the incalculable costs of pollution.
Renewable energy sources, on the other hand, offer a more sustainable and cost-effective alternative. While solar energy may require a hefty upfront payment, it is more efficient in the long run, as it offsets electricity costs for the lifespan of the panels, which can be up to 35 years. The cost of solar panels has decreased by more than 20% in the last five years and is expected to continue declining. Once installed, solar energy systems are easy to maintain and low in cost. Additionally, homeowners can sell excess energy back to the grid, further reducing their energy costs.
The costs of fossil fuels and nuclear power depend largely on the price of the fuel and the power plant's operating costs. In contrast, renewable energy plants have low operating costs and do not require fuel, as their fuel—wind, water, or sunlight—is freely available. The cost of renewable power is primarily determined by the cost of the power plant and the technology itself. As technology continues to advance, the transition to renewable energy will become less daunting and more accessible.
According to a report by the International Renewable Energy Agency, 81% of renewable energy sources offer cheaper energy 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 comparison, fossil fuel prices rose to 10 cents/kWh in 2023. These cost differences have significant implications for power companies and their customers, with estimated savings of $409 billion in fuel costs from 2000 to 2023 due to renewables.
While mining quantities for low-carbon energy may be lower than those for fossil fuels, the transition to renewable energy will ultimately reduce total energy requirements. The International Energy Agency projects that by 2040, the world will require 28 million tonnes of minerals for a sustainable development scenario. This is a much lower amount compared to the current production of 15 billion tonnes of coal, oil, and gas annually. By investing in renewable energy, countries can reduce their emissions, improve public health, and reap economic savings.
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Fossil fuel industry subsidies
Fossil fuel subsidies are energy subsidies on fossil fuels. They may take the form of tax breaks on consumption, such as a lower sales tax on natural gas for residential heating, or subsidies on production, such as tax breaks on oil exploration. They may also be free or cheap negative externalities, such as air pollution or climate change due to the burning of fossil fuels.
Fossil fuel subsidies surged to a record $7 trillion in 2022, reflecting a $2 trillion increase since 2020. This was largely due to government support for consumers and businesses during the global spike in energy prices caused by the Russian invasion of Ukraine and the economic recovery from the pandemic. The vast majority of subsidies are implicit, as environmental costs are often not reflected in prices for fossil fuels, especially for coal and diesel. Consumers did not pay for over $5 trillion of environmental costs in 2022.
The consensus among economists is that the rich benefit the most from fossil fuel subsidies. However, removing the subsidies may negatively impact poor people via indirect price increases, such as food prices. Fossil fuel companies argue that increasing taxes on them would cause unemployment and reduce national energy security. Removing subsidies would also reduce energy security concerns related to volatile fossil fuel supplies.
Subsidies have sizable fiscal costs (leading to higher taxes, more borrowing, or lower spending), promote inefficient allocation of an economy's resources (hindering growth), encourage pollution (contributing to climate change and premature deaths from local air pollution), and are not well targeted at the poor (mostly benefiting higher-income households). Removing fossil fuel subsidies would reduce health risks from air pollution and greatly reduce global carbon emissions, helping to limit climate change.
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Frequently asked questions
In 2023, fossil fuels cost about $3.12 per million British thermal units (Btu), ranging from $2.36 per million Btu for coal to $16.53 per million Btu for petroleum.
American consumers and businesses spend approximately $700 billion to $1 trillion annually on coal, oil, and natural gas.
Fossil fuels impose massive environmental and economic costs. The use of fossil fuels has detrimental effects on public health and the environment. Poor air quality increases respiratory ailments, the risk of death from cardiovascular and pulmonary diseases, infant mortality, and psychiatric disorders. Fossil-fuelled cars and trucks contribute significantly to climate change and air pollution.
