Sylvie Willis
Fossil fuel companies have long been associated with enormous profits, with the five largest fossil fuel companies, ExxonMobil, Shell, BP, Chevron, and TotalEnergies, reporting a total of nearly $200 billion in profits in 2022. In the same year, these companies' products contributed to climate change, causing extreme weather events and climate-related disasters worldwide, resulting in billions of dollars in damages and losses. Despite growing calls for a transition to renewable energy, fossil fuel companies continue to invest heavily in expanding their fossil fuel development, spending billions to secure oil and gas production. While these companies profit, consumers bear the burden of rising energy costs, and governments provide subsidies to support the industry, further enriching fossil fuel companies at the expense of the environment and public health.
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What You'll Learn
Fossil fuel subsidies
The total amount of fossil fuel subsidies varies depending on the definition used and the scope of the data. Under a narrow definition, fossil fuel subsidies totalled around $1.5 trillion in 2022. Under a broader definition, they totalled around $7 trillion in 2022, or 7.1% of global GDP. This represents a $2 trillion increase since 2020, driven by surging energy prices and government support. The United States contributed $757 billion to this figure in 2022, including $3 billion in explicit subsidies and $754 billion in implicit subsidies.
The consensus among economists is that fossil fuel subsidies disproportionately benefit higher-income households, as the poorest people are less likely to own cars or consume large amounts of energy. However, removing the subsidies may negatively impact poor people through indirect price increases in areas such as food. Additionally, fossil fuel companies argue that removing subsidies and increasing taxes could lead to unemployment and reduced national energy security.
There are ongoing efforts to reduce and reform fossil fuel subsidies. The Biden-Harris Administration's FY 2024 budget request, for example, proposes eliminating 13 fossil fuel tax preferences and credits, which could reduce the federal deficit by almost $31 billion over ten years. The Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) also include provisions for reducing fossil fuel subsidies and incentivizing carbon capture and sequestration projects.
Removing fossil fuel subsidies is expected to have a positive impact on the environment and public health. It is estimated that scrapping explicit and implicit fossil fuel subsidies could prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and significantly reduce global carbon dioxide emissions.
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Fossil fuel companies' profits
Fossil fuel companies have been making billions in profits for years, despite the growing evidence of the industry's contribution to climate change and extreme weather events. 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. These profits were made at the expense of global health and safety, as the industry plays a dominant role in causing climate change.
While fossil fuel companies continue to profit, the world is incurring record losses due to climate-related disasters. For example, the horrific flooding in Pakistan in 2022 impacted 33 million people, killed 1700, and caused up to $40 billion in damages. Unfortunately, disaster recovery efforts often struggle to keep up with community needs, and the funds pledged to the loss and damage funds are severely lacking.
Fossil fuel companies have the financial means to compensate for economic damages, but they often prioritise shareholder profit over the planet and people's lives. For instance, in 2023, ExxonMobil, Chevron, Shell, and BP spent a record $113.8 billion on dividends and stock buybacks, funneling profits straight to shareholders and executives. At the same time, these companies continue to expand their fossil fuel development and lobby for new permits, delaying the transition to renewable energy.
The high profits of fossil fuel companies come primarily from the world's continued addiction to their products, which the companies themselves lobby to maintain. Additionally, the industry benefits from billions in public subsidies and tax breaks, with taxpayers paying for new oil and gas wells and the cleanup of unplugged wells. Removing these subsidies and imposing corrective taxes would increase fuel prices, leading firms and households to consider environmental costs and potentially reducing global carbon emissions.
As the impacts of the fossil fuel industry's products become more apparent, there is a growing need for a transition to a clean energy and transportation system. This transition would not only reduce costs and mitigate climate change but also create a healthier and safer world for future generations.
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Fossil fuel companies' spending
Fossil fuel companies have been making billions in profits for years, and this money is often used to enrich investors through stock buybacks and shareholder dividends. In 2022, five of the world's biggest fossil fuel companies—ExxonMobil, Shell, BP, Chevron, and TotalEnergies—reported a total of nearly $200 billion in profits. The following year, these companies' profits exceeded $100 billion, with ExxonMobil, Chevron, Shell, and BP's combined profits surpassing this amount.
Despite the climate crisis and worsening extreme weather events, fossil fuel companies continue to expand their operations and lobby for new fossil fuel permits. They are spending billions to secure oil and gas production into the 2030s, with some even retracting pledges to decrease fossil fuel output. For example, Shell plans to invest $40 billion in oil and gas production between 2023 and 2035 while avoiding investments in renewable energy. ExxonMobil has also steered clear of wind and solar investments, instead committing $20 billion to "lower-emissions opportunities" that do not work toward phasing out fossil fuel production.
The fossil fuel industry's profits come at the expense of global health and safety. Their products have led to rising temperatures, sea levels, and ocean acidification, causing extreme weather events and climate-related disasters. In 2022, flooding in Pakistan impacted 33 million people, killed 1700, and caused up to $40 billion in damages. While communities struggle with disaster recovery, fossil fuel companies have the money to compensate for economic damages but often do not, instead prioritising profit over the planet.
Fossil fuel companies benefit from substantial subsidies, estimated at $16 billion per day by the International Monetary Fund. These subsidies include public assistance, such as the Low-Income Home Energy Assistance Program (LIHEAP), and tax breaks, such as the Intangible Drilling Costs Deduction, which allows companies to deduct most costs incurred from drilling new wells domestically. Removing these subsidies and imposing corrective taxes would increase fuel prices but could also significantly reduce global carbon dioxide emissions, improve air quality, and prevent premature deaths.
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Fossil fuel companies' tax breaks
Fossil fuel companies receive substantial government funding in the form of tax breaks and subsidies. These tax breaks are often justified as a means of reducing a country's dependence on imported oil, but they also encourage the rapid exhaustion of domestic supplies, which may increase dependence on imports in the long run. Additionally, these tax breaks divert capital from investments in other assets with higher pretax yields.
In the United States, the oil and gas industry enjoys at least $35 billion in annual tax breaks, some of which have been part of the tax code for over a century. For example, the Domestic Manufacturing Deduction, in place from 2004 until 2018, decreased the effective corporate tax rate for domestic manufacturers, including oil producers. The Office of Management and Budget estimated that repealing this deduction for fossil fuels would have saved $173 million between 2012 and 2016.
Other tax breaks for fossil fuel companies in the US include:
- Intangible Drilling Costs Deduction: This provision allows companies to deduct most of the costs incurred from drilling new wells domestically. Eliminating this tax break was estimated to generate $1.59 billion in revenue in 2017, or $13 billion over the next ten years.
- Percentage Depletion: This accounting method allows businesses to deduct a certain amount from their taxable income to reflect declining production from a reserve over time.
- Tax credits for carbon capture technology: These tax credits were designed to support technology that captures and stores carbon dioxide emissions. However, the new law gives companies an increased tax benefit for injecting those emissions into wells to force out more oil.
- Special tax treatment for income from carbon capture, hydrogen storage, advanced nuclear, hydropower, and geothermal energy: This provision provides about $3.2 billion in tax breaks.
- Tax breaks for companies that produce metallurgical coal: This benefit is worth $1.48 billion to the coal industry.
At the state level, fossil fuel companies also receive substantial subsidies and funding for research and development. For example, between 2010 and 2017, the Department of Energy provided $2.66 billion to support 794 advanced fossil energy research and development projects, with 89% of the total fossil R&D money ($1.4 billion) spent on coal-related research.
On a global scale, fossil fuel subsidies have surged to a record $7 trillion. These subsidies include explicit subsidies (undercharging for supply costs) and implicit subsidies (undercharging for environmental costs and forgone consumption taxes). Removing these subsidies would prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track to reach global warming targets.
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Fossil fuel companies' impact on the climate
Fossil fuel companies have a significant impact on the climate, and their products have global consequences. The burning of fossil fuels releases carbon dioxide (CO2), a greenhouse gas, into the atmosphere, leading to global warming and climate change. CO2 is the primary driver of climate change, and in 2018, 89% of global CO2 emissions originated from fossil fuels and industry. Oil, a significant contributor, accounts for approximately one-third of global carbon emissions. Natural gas, while promoted as a cleaner alternative, is still a fossil fuel, contributing to one-fifth of global carbon emissions. Coal, another fossil fuel, is responsible for over 0.3°C of the 1°C increase in global temperatures, making it the largest single source of global temperature rise.
The consequences of burning fossil fuels are severe and far-reaching. Rising temperatures contribute to melting ice caps and glaciers, leading to rising sea levels. This, in turn, increases the risk of extreme weather events, including more frequent and intense storms, floods, and droughts. For example, the devastating flooding in Pakistan in 2022 impacted 33 million people, causing approximately $40 billion in damages and resulting in 1700 deaths. Ocean acidification is another consequence, damaging marine ecosystems and threatening the livelihoods of those who depend on the oceans for their survival.
Fossil fuel companies have long been aware of the detrimental effects of their products on the climate. However, instead of taking responsibility and implementing changes, these companies have often chosen to deny, delay, and deceive the public and policymakers. They have engaged in campaigns of disinformation, greenwashing, and subtle propaganda to create doubt and confusion about the role of their products in causing climate change. For instance, a study revealed ExxonMobil's subtle forms of climate propaganda, including a systematic fixation on consumer energy demand and portraying climate change as a "risk" rather than a reality.
The financial backing of fossil fuel companies has also hindered progress in addressing climate change. These companies have profited immensely from their operations, with five major companies—ExxonMobil, Shell, BP, Chevron, and TotalEnergies—reporting nearly $200 billion in profits in 2022. These profits come at the expense of global health and safety, as the world experiences record losses due to extreme weather events exacerbated by climate change. Additionally, fossil fuel subsidies provided by governments further encourage the continued use of these fuels, with global fossil fuel subsidies reaching a record $7 trillion.
To address the impact of fossil fuel companies on the climate, a transition to clean energy and transportation systems is necessary. Removing explicit and implicit subsidies, imposing corrective taxes, and implementing policies that hold fossil fuel companies accountable for their actions can help reduce emissions and encourage the adoption of renewable energy sources. By doing so, we can work towards a healthier, safer, and more sustainable future for all.
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Frequently asked questions
The world's biggest fossil fuel companies, including ExxonMobil, Shell, BP, Chevron, and TotalEnergies, reported a total of nearly $200 billion in profits in 2022. In 2023, these companies' combined profits totaled over $100 billion.
Fossil fuel companies make money by selling oil, gas, and coal. These companies benefit from high energy prices and government subsidies, which totaled $16 billion per day according to the International Monetary Fund.
Fossil fuel companies use their profits to enrich investors through stock buybacks and dividends. They also invest in new oil and gas projects, mergers and acquisitions, and lobbying efforts to maintain their dominance and influence.
