Rajan Wilcox
Fossil fuels have played a dominant role in global energy systems, but they also have several negative impacts. When burned, fossil fuels produce carbon dioxide and are the largest driver of global climate change. They are also a major contributor to local air pollution, which is estimated to be linked to millions of premature deaths each year. Fossil fuels are also subsidized by governments, with global subsidies reaching $7 trillion in 2022. These subsidies have been criticized for encouraging the continued use of fossil fuels and inhibiting the transition to clean energy. Despite these criticisms, the fossil fuel industry continues to be highly profitable, with the top five companies in the industry reporting a total of nearly $200 billion in profits in 2022.
| Characteristics | Values |
|---|---|
| Fossil fuel subsidies in 2022 | $7 trillion |
| Fossil fuel subsidies in 2017 | $5.2 trillion |
| US fossil fuel subsidies in 2017 | $649 billion |
| US fossil fuel revenue in 2023 | $244.4 billion |
| US fossil fuel revenue in 2022 | $330.8 billion |
| US fossil fuel revenue from 2015-2020 | $138 billion annually |
| US direct fossil fuel subsidies | $20 billion per year |
| European Union fossil fuel subsidies | €55 billion annually |
| ExxonMobil's earnings in 2022 | $55.7 billion |
| Chevron's earnings in 2022 | $35.5 billion |
| Total earnings of ExxonMobil, Shell, BP, Chevron, and TotalEnergies in 2022 | $200 billion |
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What You'll Learn
Fossil fuel subsidies
The subsidies are intended to protect consumers by keeping prices low, but they have significant negative consequences. Firstly, they promote inefficient allocation of resources, hindering economic growth. Secondly, they encourage pollution and contribute to climate change and adverse health effects, including premature deaths from local air pollution. Additionally, they often benefit higher-income households rather than targeting vulnerable groups.
The distribution of fossil fuel subsidies varies across regions. In 2022, the United States provided $757 billion in subsidies, including $3 billion in explicit subsidies and $754 billion in implicit subsidies, which cover negative externalities such as environmental degradation and health impacts. In the same year, federal tax subsidies for coal in the US decreased from $1.9 billion in 2016 to $590 million. States also play a role in subsidizing fossil fuels, providing support through measures like sales tax exemptions.
To address these issues, there have been various proposals and attempts to reduce or reform fossil fuel subsidies. The Biden-Harris Administration's FY 2024 budget request includes eliminating 13 fossil fuel tax preferences and credits, which could reduce the federal deficit by almost $31 billion over 10 years. Additionally, the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) provide incentives for carbon capture and sequestration projects, with the IRA also subsidizing fossil fuel companies by providing funds for methane emission reductions.
Despite these efforts, fossil fuel subsidies remain a complex issue. Removing subsidies may lead to indirect price increases, impacting lower-income households. Additionally, governments argue that subsidies are necessary to shield citizens from variations in international energy prices. However, the general consensus is that removing subsidies would bring numerous benefits, including reduced global carbon emissions, improved air quality, and increased government revenues, ultimately contributing to a healthier and more sustainable planet.
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US revenues from fossil fuels
Fossil fuels provide substantial revenue for the US federal government, as well as many states, tribes, and localities. Between 2015 and 2020, fossil fuels generated approximately $138 billion each year for these beneficiaries. This revenue is derived from upstream (production), midstream (transportation and processing), and downstream (consumption) fossil fuel use.
However, as the energy market shifts towards cleaner alternatives, the loss of these revenue streams will significantly impact communities heavily reliant on fossil fuel revenues. Wyoming, North Dakota, Alaska, and New Mexico are the top states in this category, with more than 14% of total state and local revenues derived from fossil fuels, and in the case of Wyoming, this figure exceeds 50%. This revenue is vital for funding essential services such as schools, public health, and infrastructure.
The transition to cleaner energy sources will result in a decline in government revenues, even without new climate policies. Petroleum product taxes, the largest revenue source, will decrease under all scenarios. Oil and gas extraction, the second-largest revenue source, will remain relatively stable under current conditions but will decline more rapidly if stricter climate targets are pursued. Coal revenue is projected to plummet to zero by 2040 under most scenarios.
To mitigate the fiscal risks posed by the energy transition, governments must implement effective strategies. This includes investing existing revenues into savings funds, adopting new tax policies, and diversifying local economies. While clean energy may become a significant source of government revenue in the future, the regions benefiting from this transition may differ from those currently dependent on fossil fuels.
In summary, while the US has derived substantial revenues from fossil fuels, the energy transition will result in declining revenues for governments, especially those heavily reliant on this industry. Proactive measures are necessary to address the fiscal risks and support communities during this period of change.
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Oil and gas industry revenue
The oil and gas industry is a significant contributor to the global economy, accounting for around 3.8% of the global economy. The largest global producers of oil are the United States, Saudi Arabia, and Russia, which together produced approximately 40 million barrels of oil per day in 2022, constituting 43% of total world production.
In 2023, the United States' oil and gas industry generated a total revenue of $244.4 billion, a notable decrease from the previous year's peak of $330.8 billion. This decline can be attributed to various factors, including the financial crisis, unstable petroleum prices, and the shift towards clean energy alternatives.
The revenue figures vary across different companies within the oil and gas industry. For instance, Reliance Petroleum reported revenues of $124 billion in 2022, while the Indian Oil Corporation's revenues for the same year amounted to $119.5 billion.
Government subsidies also play a significant role in the finances of the oil and gas industry. In 2019, conservative estimates placed U.S. direct subsidies to the fossil fuel industry at approximately $20 billion annually, with 80% allocated to natural gas and crude oil. However, the International Monetary Fund (IMF) reported a higher estimate, stating that 6.5% of global GDP ($5.2 trillion) was spent on fossil fuel subsidies in 2017, with the largest subsidizers being China, the United States, and Russia.
While the oil and gas industry generates substantial revenue, there are growing concerns about its environmental impact. Consuming fossil fuels imposes significant environmental costs, primarily from air pollution and global warming. As a result, there are increasing calls to phase out explicit and implicit fossil fuel subsidies, which could lead to significant reductions in global carbon emissions and improvements in public health.
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Fossil fuel companies' profits
Fossil fuel companies make billions of dollars in profits each year. In 2022, just five companies—ExxonMobil, Shell, BP, Chevron, and TotalEnergies—reported a total of almost $200 billion in profits. ExxonMobil and Chevron, both headquartered in the United States, reported earnings of $55.7 billion and $35.5 billion, respectively, in 2022. In 2023, the total revenue of the United States' oil and gas industry was $244.4 billion, down from $330.8 billion in 2022.
Fossil fuel companies benefit from various subsidies and tax breaks that encourage domestic energy production and lower production costs. Conservative estimates put US direct subsidies to the fossil fuel industry at $20 billion per year, with 80% allocated to natural gas and crude oil. In 2017, the latest International Monetary Fund (IMF) report estimated that 6.5% of global GDP ($5.2 trillion) was spent on fossil fuel subsidies, a half-trillion-dollar increase since 2015. Fossil fuel subsidies surged to a record $7 trillion in 2022 as governments supported the industry during the energy price spike caused by the Ukraine war and the pandemic recovery. Removing these subsidies would significantly reduce global carbon emissions, improve air quality, and increase government revenue.
In the United States, some states are highly dependent on fossil fuel revenues, which fund essential services like schools, public health, and infrastructure. Between 2015 and 2020, fossil fuels generated approximately $138 billion annually for US localities, states, tribes, and the federal government. However, as the energy market shifts towards clean energy, these revenue streams are expected to decline, posing fiscal challenges for communities reliant on fossil fuel industries.
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Fossil fuel consumption
The consumption of fossil fuels has resulted in numerous countries experiencing devastating climate-related disasters, including droughts, floods, severe storms, and wildfires. These events have incurred substantial economic and humanitarian losses, with the impacts extending beyond national borders. In 2022, the United States experienced 18 separate climate and weather-related disasters, with the total estimated cost reaching $165 billion. Simultaneously, Pakistan faced horrific flooding that impacted 33 million people and caused up to $40 billion in damages.
According to the International Monetary Fund (IMF), global subsidies for fossil fuels reached $5.2 trillion in 2017, a half-trillion-dollar increase since 2015. China, the United States, and Russia were the largest subsidizers. The latest estimate from the IMF puts fossil fuel subsidies at a record $7 trillion, as governments supported consumers and businesses during the energy price spike caused by the Ukraine conflict and the post-pandemic economic recovery. These subsidies have contributed to the continued extraction and combustion of fossil fuels, despite the availability of renewable alternatives.
In the United States, fossil fuels generated approximately $138 billion annually between 2015 and 2020 for local, state, tribal, and federal governments. However, this revenue stream is expected to decline due to the increasing adoption of clean energy sources. Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues, with a significant portion of their total state and local revenues originating from this industry. Nevertheless, the costs of fossil fuel use, including environmental and health impacts, far outweigh the fiscal benefits.
While the transition away from fossil fuels is crucial for mitigating climate change and improving public health, it also presents economic challenges. Policymakers must adopt smart tax policies, invest in new economic sectors, and provide support for communities historically reliant on fossil fuels to adapt successfully to the changing energy landscape.
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Frequently asked questions
Fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government between 2015 and 2020. In 2023, the total revenue of the US oil and gas industry was $244.4 billion, a decrease from $330.8 billion in the previous year.
Fossil fuel subsidies surged to a record $7 trillion last year. The largest subsidizers are China ($1.4 trillion in 2015), the United States ($649 billion), and Russia ($551 billion). Conservative estimates put US direct subsidies to the fossil fuel industry at roughly $20 billion per year.
Fossil fuel revenues are expected to decline under all scenarios, even in the absence of new climate policies. Fossil fuel revenues are vital for funding services like schools, public health, and infrastructure in some states. Removing fossil fuel subsidies would increase government revenues by $4.4 trillion.
