Sylvie Willis
Fossil fuels are a primary energy source that includes petroleum, natural gas, and coal. In 2023, fossil fuels accounted for about 84% of total US primary energy production, with Americans spending roughly $700 billion to $1 trillion annually on these fuels. This expenditure is projected to increase, with the US potentially spending $1.3 trillion on oil alone by 2030. The vast majority of this money is spent on crude oil, with oil prices being a key driver of higher expenditures. This money is a direct transfer of wealth from American consumers to oil companies and foreign governments, with fossil fuel subsidies costing the US government $7 trillion in 2022.
| Characteristics | Values |
|---|---|
| Amount spent on importing fossil fuels in 2007 | $360 billion |
| Percentage of money spent on energy that goes towards fossil fuels | 10% |
| Annual amount spent by American consumers and businesses on coal, oil and natural gas | $700 billion to $1 trillion |
| Estimated total amount spent on fossil fuels between 2010 and 2030 | $23 trillion |
| Estimated amount spent on fossil fuels by 2030 | $30 trillion |
| Fossil fuel expenditure in 2023 | $7 trillion |
| Fossil fuel revenue generated for US localities, states, tribes, and the federal government | $138 billion |
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What You'll Learn
Fossil fuel subsidies
In 2022, fossil fuel subsidies in the United States totaled $757 billion, according to the International Monetary Fund. This includes $3 billion in explicit subsidies and $754 billion in implicit subsidies, which are costs like negative health impacts and environmental degradation that are borne by society at large rather than producers. Globally, fossil fuel subsidies were $7 trillion or 7.1% of GDP in 2022, a $2 trillion increase since 2020 due to government support during the global spike in energy prices caused by Russia's invasion of Ukraine and the economic recovery from the pandemic. Under a narrower definition, fossil fuel subsidies totalled around $1.5 trillion in 2022.
There are several negative consequences of fossil fuel subsidies. Firstly, they impose enormous environmental costs, mostly from local air pollution and damage from global warming. Consumers did not pay for over $5 trillion of environmental costs last year. Secondly, fossil fuel subsidies benefit rich households more than poor ones. Removing fossil fuel subsidies may impact poor people through indirect price increases, but the rich receive a much larger absolute benefit. Thirdly, fossil fuel subsidies can hinder economic growth by promoting inefficient allocation of an economy's resources. Finally, fossil fuel subsidies contribute to climate change and premature deaths from local air pollution.
There have been several proposals and actions to reduce 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 also repeal fossil fuel tax breaks. Additionally, the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) include incentives for carbon capture, utilization, and storage projects, which can help reduce methane emissions and store carbon dioxide.
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Oil prices
The United States' expenditure on fossil fuels is projected to increase further. Between 2010 and 2030, the country is expected to spend an estimated $23 trillion on fossil fuels, assuming energy consumption and fossil fuel prices follow the US government's projections. This amount is equivalent to three years' worth of income for the entire American workforce at current earning rates. If oil prices reach $200 per barrel by 2030, the United States will spend $1.3 trillion out of $1.6 trillion in total fossil fuel costs on oil alone.
The high cost of fossil fuels has significant economic, environmental, and health implications. Fossil fuel combustion is the leading contributor to global warming, which poses environmental and economic threats. The transition to clean energy sources is crucial to addressing these challenges. However, it also presents fiscal risks for governments dependent on fossil fuel revenues, particularly in states like Wyoming, North Dakota, Alaska, and New Mexico, where fossil fuel revenues account for a significant portion of state and local incomes.
To address the potential loss of revenue from the decline in fossil fuel usage, governments can implement changes to tax policies and invest in new economic sectors, including clean energy. Removing explicit and implicit fossil fuel subsidies can also play a crucial role in accelerating the transition to clean energy and reducing global warming. While removing fuel subsidies can be complex, carefully designed and communicated reforms can help achieve a healthier and more sustainable planet.
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$128.94 $159
Environmental costs
Fossil fuels have significant environmental externalities. The combustion of fossil fuels is the leading contributor to global warming and climate change. The burning of fossil fuels releases greenhouse gases, such as carbon dioxide, which trap heat in the Earth's atmosphere. In 2019, fossil fuels accounted for 74% of US greenhouse gas emissions, with nearly 25% of emissions coming from fossil fuels extracted from public lands. The environmental costs of fossil fuels are often not reflected in their market prices, and consumers may not be paying for the full extent of the damage caused.
The use of fossil fuels has led to ocean acidification, with at least a quarter of the carbon dioxide emitted being absorbed by the oceans, altering their chemistry (pH). This, along with oceanic and atmospheric warming, has resulted in global sea level rise. Sea levels have risen by 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, 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. These pollutants have harmful effects on both the environment and human health. Air pollution from fossil fuels can cause acid rain, eutrophication (which harms aquatic ecosystems by lowering oxygen levels), damage to crops and forests, and harm to wildlife. Globally, fossil fuel pollution is responsible for one in five deaths. In the United States alone, 350,000 premature deaths in 2018 were attributed to fossil fuel-related pollution. The annual cost of the health impacts of fossil fuel-generated electricity in the US is estimated to be up to $886.5 billion.
In addition, the extraction, transportation, and refining of fossil fuels can lead to oil spills, which harm wildlife, destroy habitats, erode shorelines, and result in beach, park, and fishery closures. The 2010 BP Deepwater Horizon oil spill, the largest in history, released 134 million gallons of oil into the Gulf of Mexico, killing 11 people and countless animals, plants, and marine life. It cost BP $65 billion in penalties and cleanup costs.
The transition away from fossil fuels is crucial to reducing these environmental costs. Removing explicit and implicit fossil fuel subsidies, currently estimated at $7 trillion globally, would encourage the adoption of cleaner energy sources and reduce emissions, leading to cleaner air and less disease. Scrapping these subsidies is projected to prevent 1.6 million premature deaths annually and raise government revenues by $4.4 trillion. However, this transition must be carefully planned to support communities that depend on the fossil fuel industry for their livelihoods and local economies.
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US government projections
According to a 2007 analysis, the United States could reduce its emissions of global warming pollution by approximately 1.2 billion metric tons of carbon dioxide per year, which is roughly 20% of the country's fossil fuel emissions at the time.
The US government projections estimate that the country will spend $23 trillion on fossil fuels between 2010 and 2030, assuming energy consumption and fossil fuel prices follow their trajectory. This amount is equivalent to three years' worth of income for all American workers at current earning rates. While fossil fuel expenditures are expected to decline in the following years due to the economic recession, annual expenditures of over $1 trillion are expected to become the "new normal" by the mid-2020s. By 2030, the US is projected to spend approximately $360 billion more per year on fossil fuels compared to 2006. If fossil fuel prices increase faster, the US may spend over $30 trillion on fossil fuels between 2010 and 2030.
The US federal government and many states, tribes, and localities benefit significantly from fossil fuel revenues. Between 2015 and 2020, fossil fuels generated an estimated $138 billion annually for these entities. However, as the shift towards clean energy gains momentum, the loss of these revenue streams will significantly impact communities heavily reliant on fossil fuel industries. Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues, with over 14% of their total state and local revenues derived from this sector. In Wyoming, more than 50% of state revenue comes from fossil fuels.
Fossil fuel subsidies, which include negative externalities, have been increasing globally. According to the International Monetary Fund (IMF), global GDP expenditures on fossil fuel subsidies reached $5.2 trillion in 2017, a $0.5 trillion increase since 2015. The United States was the second-largest contributor to this, with subsidies of $649 billion in 2015 and $646 billion annually, according to another source. These subsidies have surged further due to the recent global energy price spike caused by the Russia-Ukraine conflict and the post-pandemic economic recovery, reaching a record $7 trillion. These subsidies are a significant barrier to reducing global warming and emissions, as they artificially lower the cost of fossil fuels, making them more attractive to consumers and businesses.
To conclude, the US government projections on fossil fuel spending highlight the significant financial burden on Americans and the economy as a whole. The projected expenditures underscore the urgency of transitioning to clean energy sources and phasing out fossil fuel subsidies to curb emissions and mitigate the impacts of climate change.
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US federal government revenue
Fossil fuels provide substantial revenue to the US federal government, with a new RFF working paper finding that between 2015 and 2020, fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government. However, as fossil fuels lose their dominance in the energy market to clean energy, these revenue streams will be significantly impacted.
The US federal government provides funding to the fossil fuel industry in the form of project loans, grants, and guarantees from the Overseas Private Investment Corporation (OPIC) and the United States Export-Import Bank (EXIM). These sources of funding are intended to provide capital and fiscal security for investments in emerging markets overseas. Additionally, the federal government offers discounted leasing rates for fossil fuel extraction on federal lands, further subsidizing the industry.
Petroleum product taxes are the largest source of revenue for the US federal government from fossil fuels, followed by oil and gas extraction. Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues, with more than 14% of total state and local revenues coming from fossil fuels, rising above 50% in Wyoming. This revenue is crucial for funding essential services such as schools, public health, and infrastructure.
The social cost of carbon reflects the negative societal impacts of climate change caused by man-made carbon emissions. While challenging to quantify, these costs include the spread of diseases, decreased food security, coastal vulnerabilities, and public health expenditures. Fossil fuel combustion is the leading contributor to global warming, which poses significant risks to key cities such as New York, Miami, and New Orleans, making them more vulnerable to costly storm damage.
While the US federal government gains revenue from fossil fuels, American consumers and businesses spend a significant amount on these energy sources. Between 2010 and 2030, the United States is projected to spend an estimated $23 trillion on fossil fuels, assuming energy consumption and fossil fuel prices follow government projections. This amount is equivalent to three years' worth of income for the entire American workforce at current earning rates. If fossil fuel prices increase further, the United States could spend over $30 trillion during this period.
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Frequently asked questions
Americans spend roughly $700 billion to $1 trillion each year on fossil fuels, with coal, oil, and natural gas being the most common sources.
Fossil fuel subsidies have surged to a record $7 trillion, with governments supporting consumers and businesses during the global energy price spike.
Fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government. However, this revenue is expected to decrease as the energy market shifts towards clean energy alternatives.
The costs of continuing on the current energy path are high. In addition to the direct financial costs of fossil fuels, there are also the incalculable costs of pollution and global warming, which can inflict massive economic damage through increased storms and rising sea levels.
