Ameer Randolph
Fossil fuels, including coal, oil, and gas, have been the dominant global energy source for most of history. However, their environmental costs are enormous, and they are the largest driver of global climate change. Despite the availability of low-carbon energy sources, the fossil fuel industry continues to be highly profitable, with the world's biggest companies reporting nearly $200 billion in profits in 2022. The industry as a whole earned $4 trillion in 2022, up from an average of $1.5 trillion in previous years. Fossil fuel subsidies, meant to lower production costs, have also surged to a record $7 trillion, costing more than governments spend annually on education. With the world struggling to restrict global warming, it is time to phase out these subsidies and transition to a cleaner, more sustainable energy system.
| Characteristics | Values |
|---|---|
| Fossil fuel subsidies | $7 trillion |
| Fossil fuel companies' profits | $200 billion |
| Fossil fuel industry's profit over 50 years | $52 trillion |
| Fossil fuel industry subsidies per day | $16 billion |
| Fossil fuel industry profit per day | $2.8 billion |
| US revenue from fossil fuels | $138 billion |
| US oil and gas industry revenue in 2023 | $244.4 billion |
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What You'll Learn
Fossil fuel subsidies
There are different ways to calculate the total value of fossil fuel subsidies. Under a narrow definition, fossil fuel subsidies totalled around $1.5 trillion in 2022. Under a more expansive definition, they totalled around $7 trillion. This larger figure includes the cost of damage to human health and the climate. According to the International Monetary Fund, the fiscal cost of government support for fossil fuels was $1.1 trillion in 2023. In the United States, fossil fuel subsidies totalled $757 billion in 2022, including $3 billion in explicit subsidies and $754 billion in implicit subsidies.
The true cost of fossil fuel subsidies is difficult to calculate. While subsidies are intended to protect consumers by keeping prices low, they have significant fiscal consequences, including higher taxes and lower spending. They also promote inefficient allocation of an economy's resources, hindering growth, and encourage pollution, contributing to climate change and premature deaths from local air pollution. According to the International Energy Agency, fossil fuel subsidies "hit the poor hardest", but they "rarely [target] vulnerable groups" and tend to benefit higher-income households. The consensus among economists is that the rich receive the most absolute benefit from fossil fuel subsidies. For example, the poorest people do not usually own cars. However, removing the subsidies may hurt poor people through indirect price increases, such as food prices.
There have been several proposals and attempts to reduce or reform fossil fuel subsidies. The Biden-Harris Administration's FY 2024 budget request would eliminate 13 fossil fuel tax preferences and credits, such as the tax credit for oil and natural gas extracted from marginal wells. The End Oil and Gas Tax Subsidies Act of 2023 (R.1483) would repeal fossil fuel tax breaks. The Inflation Reduction Act (IRA) subsidizes fossil fuel companies, including by providing $1.55 billion for methane emission reductions, but it also extends and modifies the 45Q tax credit for carbon dioxide sequestration.
Removing fossil fuel subsidies would have significant benefits. It would reduce the health risks of air pollution and greatly reduce global carbon emissions, helping to limit climate change. Scrapping explicit and implicit fossil fuel subsidies would prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track toward reaching global warming targets. However, removing fuel subsidies can be tricky, and governments must design, communicate, and implement reforms clearly and carefully.
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Fossil fuel profits
Fossil fuel companies are making billions in profits while people around the world suffer losses due to climate change. In 2022, the world's five biggest fossil fuel companies—ExxonMobil, Shell, BP, Chevron, and TotalEnergies—reported a total of nearly $200 billion in profits. At the same time, the world is incurring record losses due to extreme weather events, which have been worsened by climate change. The fossil fuel industry's products and impacts are global in nature, and the industry plays a dominant role in causing climate change.
The oil and gas industry has delivered staggering profits, with an analysis revealing $2.8 billion (£2.3 billion) a day in pure profit for the last 50 years. The total captured by petrostates and fossil fuel companies since 1970 is $52 trillion. These profits have enabled the industry to delay action on the climate crisis and combat efforts to transition to alternative energy systems. The industry's lobbyists work to maintain high profits by convincing the public and policymakers that lowering prices requires increasing fossil fuel production and decreasing environmental regulation, resulting in a cycle of increased reliance on fossil fuels and more damages induced by climate change.
Fossil fuel companies benefit from substantial subsidies, with implicit subsidies projected to grow as developing countries increase their consumption of fossil fuels. In 2022, fossil fuel subsidies surged to a record $7 trillion globally as governments supported consumers and businesses during the spike in energy prices caused by the Ukraine war and the economic recovery from the pandemic. Consumers did not pay for over $5 trillion of environmental costs last year, and the vast majority of subsidies are implicit, as environmental costs are often not reflected in fossil fuel prices. Removing fuel subsidies can be challenging, but it is necessary for reducing global carbon dioxide emissions and improving public health.
While fossil fuels provide significant revenue for governments, the costs of fossil fuel use far outweigh the fiscal losses. In the United States, fossil fuels generated roughly $138 billion each year for localities, states, tribes, and the federal government between 2015 and 2020. However, as the energy market shifts towards clean energy, the loss of these revenue streams will impact communities reliant on fossil fuel industries. Fossil fuel consumption has increased significantly over the past centuries, but the world needs to rapidly transition away from fossil fuels to mitigate climate change and create a healthier and safer future.
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Fossil fuel costs
Fossil fuels are a significant source of revenue for governments and industries, but they also come with substantial costs that are often overlooked or externalized.
Economic Costs and Benefits
Fossil fuels have long been a backbone of the global economy, with the industry generating substantial profits. In 2022, just five fossil fuel companies—ExxonMobil, Shell, BP, Chevron, and TotalEnergies—reported a total of nearly $200 billion in profits. Additionally, between 2015 and 2020, fossil fuels generated approximately $138 billion annually for US localities, states, tribes, and the federal government. However, the costs of fossil fuel use can outweigh these economic benefits. For instance, the US experienced $165 billion in losses due to climate-fueled natural disasters in 2021, contributing to a total of $595.5 billion in losses over the last five years.
Environmental Costs
The burning of fossil fuels is a significant contributor to air pollution and global warming, resulting in enormous environmental costs. Consumers did not pay for over $5 trillion of environmental costs last year, and this number would almost double if the damage to the climate was valued at levels found in some scientific studies. The environmental impact of fossil fuels leads to further economic costs, such as the $8 billion per day in global health costs associated with air pollution.
Subsidies
Fossil fuel subsidies, which totaled a record $7 trillion last year, also factor into the overall costs associated with fossil fuels. These subsidies occur when governments undercharge for supply costs or do not reflect environmental costs in prices. While subsidies aim to support consumers and businesses during energy price spikes, they can perpetuate a reliance on fossil fuels and hinder progress toward global warming targets. Removing these subsidies could prevent 1.6 million premature deaths annually, increase government revenues, and reduce emissions. However, it is a complex issue, as removing subsidies may lead to higher energy prices for vulnerable households.
Transition to Renewable Energy
The transition to renewable energy sources is crucial for mitigating the costs associated with fossil fuels. Renewable energy sources, such as onshore wind and solar, are now more affordable than fossil fuels and do not carry the same environmental and health costs. Additionally, the development of clean energy can provide new sources of government revenue, although it may take time for these industries to boom in the same regions that previously relied on fossil fuels.
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Fossil fuel consumption
In the United States, fossil fuels generated approximately $138 billion annually between 2015 and 2020 for various government entities. Fossil fuels accounted for about 84% of total US primary energy production in 2023, with petroleum constituting the majority of this figure. In the same year, US total annual energy production exceeded total annual energy consumption, with production at about 102.83 quads and consumption at 93.59 quads.
The environmental costs of fossil fuel consumption are significant, contributing to local air pollution, global warming, and extreme weather events. The removal of fossil fuel subsidies and the implementation of corrective taxes could help address these issues by encouraging a transition to cleaner energy sources and reducing global carbon dioxide emissions.
The cycle of increased fossil fuel consumption, higher industry profits, and exacerbated climate change impacts needs to be broken. While fossil fuel companies profit, people worldwide suffer losses due to climate-related disasters, such as the devastating flooding in Pakistan in 2022, which caused up to $40 billion in damages and impacted 33 million people.
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Fossil fuel revenue
Fossil fuels have been a fundamental driver of technological, social, and economic development since the Industrial Revolution. They continue to play a dominant role in global energy systems, with coal, oil, and gas contributing to energy production. However, the burning of fossil fuels has severe environmental and health consequences, causing local air pollution and driving global climate change.
The fossil fuel industry generates substantial revenue, with the oil and gas sector alone earning $2.8 billion a day in pure profit over the last 50 years, amounting to a staggering $52 trillion. In 2023, the United States' oil and gas industry revenue reached $244.4 billion, a decrease from the previous year's peak of $330.8 billion. Fossil fuels also provide significant income to the US government and various communities, generating approximately $138 billion annually between 2015 and 2020.
The industry benefits from substantial subsidies, estimated at $16 billion per day globally. These subsidies have surged recently, reaching a record $7 trillion due to increased support during the energy price spike caused by the Ukraine conflict and the post-pandemic economic recovery. The vast majority of these subsidies are implicit, as environmental costs are often not reflected in fossil fuel prices. As a result, consumers did not pay for over $5 trillion in environmental costs last year.
The high profits of the fossil fuel industry have enabled them to combat efforts to transition to alternative energy sources. This has resulted in a self-perpetuating cycle where lobbyists advocate for increased fossil fuel production and reduced environmental regulations, leading to greater industry profits and further damage induced by climate change. While the industry profits, people worldwide suffer losses from climate-related disasters, such as the devastating flooding in Pakistan in 2022, which caused approximately $40 billion in damages and impacted 33 million people.
Removing fossil fuel subsidies is a complex issue. While it would increase fuel prices, it would also encourage firms and households to consider environmental costs in their decisions, leading to reduced carbon emissions and improved health outcomes. Scrapping these subsidies is estimated to prevent 1.6 million premature deaths annually and raise government revenues by $4.4 trillion.
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Frequently asked questions
The fossil fuel industry is worth trillions of dollars. In 2023, the total revenue of the United States' oil and gas industry was 244.4 billion US dollars, down from 330.8 billion US dollars in 2022. The oil and gas industry has delivered $2.8 billion a day in pure profit for the last 50 years, for a total of $52 trillion.
Fossil fuel companies make billions of dollars in profit. Just five companies (ExxonMobil, Shell, BP, Chevron, and TotalEnergies) reported a total of nearly $200 billion in profits in 2022.
The fossil fuel industry is the dominant driver of global climate change and is responsible for local air pollution, which is linked to millions of premature deaths each year. The burning of fossil fuels produces carbon dioxide (CO2), which contributes to global warming.
Fossil fuel companies make profits by producing and selling oil, gas, and other petroleum products. They have also been accused of lobbying policymakers to maintain high profits by increasing fossil fuel production and decreasing environmental regulation.
The fossil fuel industry benefits from subsidies of $16 billion a day, according to the International Monetary Fund. Fossil fuel subsidies surged to a record $7 trillion last year as governments supported consumers and businesses during the global spike in energy prices.
