Mercedes Mullins
Despite the growing prevalence of clean energy sources, the world continues to spend vast sums of money on fossil fuels. In 2022, global public financial support for fossil fuels exceeded USD 1.7 trillion, with subsidies reaching a record-high of USD 1.3 trillion. These figures represent a significant amount of money, equivalent to approximately 7% of global GDP. While governments might justify this spending as necessary to support energy supply and access, it is important to consider the environmental and economic costs of continuing to rely on fossil fuels. The burning of fossil fuels contributes to global warming, local air pollution, and other societal costs such as road accidents and congestion. Furthermore, the funds currently absorbed by fossil fuel support could be redirected towards investments in clean energy and addressing the climate crisis.
| Characteristics | Values |
|---|---|
| Global spending on fossil fuel subsidies in 2022 | $7 trillion |
| Global spending on fossil fuel subsidies as a percentage of global GDP | 7.1% |
| Global spending on fossil fuel subsidies compared to government spending on education | Twice as much |
| Global spending on fossil fuel subsidies compared to government spending on healthcare | Two-thirds |
| Global spending on fossil fuel subsidies per person | $187 |
| Spending on fossil fuel subsidies in the US in 2007 | $360 billion |
| Spending on fossil fuels in the US between 2010 and 2030 | $23 trillion |
| Spending on fossil fuels in the US between 2010 and 2030 (alternative estimate) | $30 trillion |
| Spending on fossil fuels in Europe in 2022 | $350 billion |
| Spending on fossil fuel subsidies in 2022 | $1.3 trillion |
| Global spending on fossil fuels in 2022 | $1.7 trillion |
| G7 spending on fossil fuels in 2022 | $20 billion |
| G7 spending on clean energy in 2022 | $10 billion |
| Spending on fossil fuel subsidies in major oil-producing countries | Over $500 per person |
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What You'll Learn
Fossil fuel subsidies
There have been recent attempts to reduce or reform fossil fuel subsidies. For instance, the Biden-Harris Administration's FY 2024 budget request proposed eliminating 13 fossil fuel tax preferences and credits, which would reduce the federal deficit by almost $31 billion over 10 years. Additionally, the End Oil and Gas Tax Subsidies Act of 2023 (R.1483) aimed to repeal fossil fuel tax breaks. However, despite pledges from G20 countries to phase out inefficient fossil fuel subsidies, they have continued due to voter demand and energy security concerns.
The consensus among economists is that the rich benefit the most from fossil fuel subsidies, as the poorest people do not usually own cars or consume energy in ways that are directly subsidized. However, removing subsidies may negatively impact poor people through indirect price increases in areas such as food. In addition, oil companies argue that increasing taxes on them would lead to unemployment and reduced national energy security. Nonetheless, removing fossil fuel subsidies would reduce energy security concerns related to volatile fossil fuel supplies and encourage a transition to cleaner energy sources.
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$36.15 $55
Government spending
In the United States, taxpayers contribute an estimated $20 billion annually to the fossil fuel industry. These subsidies have been criticized by economists, who argue that they provide little benefit in terms of job creation, lower prices, or energy security. Instead, they perpetuate a system that harms the environment and poses economic risks. The true cost of fossil fuels is often overlooked, as the negative externalities, such as pollution and climate change, are not factored into the economic equation.
The burning of fossil fuels releases nitrogen oxides and ammonia into the atmosphere, contributing to smog and acid rain formation. This air pollution has detrimental effects on human health and the environment. Additionally, the carbon emitted from fossil fuels is a significant contributor to climate change, with emissions continuing to rise globally. According to NASA's Global Carbon Budget, emissions from fossil fuels rose by 1.1% in 2023 compared to 2022 levels, reaching 36.8 billion metric tons of carbon dioxide.
While there has been a shift towards clean energy, with it now providing more employment than the fossil fuel industry, the political influence of fossil fuel companies remains strong. This influence contributes to the perpetuation of subsidies and the hindrance of meaningful progress towards addressing climate change. It is essential for governments to recognize the true cost of fossil fuels and redirect spending towards sustainable and environmentally friendly alternatives.
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Environmental impact
Fossil fuel combustion is the leading contributor to global warming, which poses a significant environmental and human catastrophe. The production and use of fossil fuels have wide-ranging environmental impacts, from local air pollution to global climate change. The burning of fossil fuels releases greenhouse gases, such as carbon dioxide, contributing to the greenhouse effect and global warming. This, in turn, leads to a range of environmental consequences, including rising temperatures, melting ice caps, and more frequent extreme weather events.
One of the most significant environmental impacts of fossil fuel use is air pollution. Fossil fuels are a leading source of air pollution, releasing harmful pollutants such as nitrogen oxides, sulfur dioxide, and particulate matter into the atmosphere. These pollutants have detrimental effects on human health, contributing to respiratory and cardiovascular diseases, and can also result in the formation of ozone smog, further exacerbating air quality issues. The economic cost of air pollution in sectors regulated under the Clean Air Act has been substantial, estimated at $9 trillion between 1970 and 2000, with costs resulting from pollution-induced early mortality, illness, healthcare expenses, and lost productivity.
In addition to air pollution, the extraction and refining of fossil fuels can result in landscape degradation, the risk of spills, and other unintentional environmental damage. For example, coal mining operations can lead to permanent landscape damage, the creation of large amounts of toxic mine wastes, and water pollution. Coal ash, a combustion byproduct, contains heavy metals such as arsenic, mercury, and chromium, which can contaminate groundwater and pose risks to both human health and the environment.
The environmental costs of fossil fuels are often not reflected in their market prices, with economists referring to these unaccounted costs as "externalities". These externalities include local air pollution, global warming, social costs, environmental costs, and health costs. According to the International Monetary Fund (IMF), the total environmental and societal costs of burning fossil fuels amount to $7 trillion, with consumers failing to pay for over $5 trillion of environmental costs in a single year.
The true price of carbon and other pollutants is often overlooked in policy mechanisms incentivizing fossil fuel production. Vulnerable communities, including minority and low-income populations living near highly polluting facilities, are disproportionately affected by the health and environmental impacts of fossil fuel combustion and extraction. Removing fossil fuel subsidies and imposing corrective taxes could significantly reduce global carbon dioxide emissions, improve air quality, reduce the incidence of lung and heart diseases, and generate additional government revenues.
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Health impact
Burning fossil fuels has a significant impact on human health, contributing to a range of issues and costing countries billions of dollars each year. Fossil fuel combustion releases harmful pollutants into the atmosphere, including particulate matter, carbon monoxide, sulfur dioxide, nitrogen oxides, ozone, and mercury. These pollutants have been linked to various health problems, such as asthma, lung disease, bronchitis, other chronic respiratory diseases, and even lung cancer. According to a report by the NRDC, the financial costs of fossil fuel-generated air pollution and climate change in the United States result in more than $820 billion in health costs each year. This includes the costs associated with injuries, hospitalizations, premature deaths, mental health ailments, and lost wages.
The combustion of fossil fuels is also a leading contributor to global warming, which poses additional health risks. Rising temperatures and carbon dioxide concentrations can increase the intensity and duration of pollen seasons, affecting individuals with allergies and asthma. Climate change can also expand the range of disease-carrying ticks and mosquitoes, leading to the increased spread of Lyme disease and West Nile Virus. Furthermore, global warming is expected to cause more frequent and severe extreme weather events, including wildfires, hurricanes, wind storms, flooding, and droughts, resulting in significant economic and societal disruptions.
The health impacts of fossil fuel pollution disproportionately affect vulnerable and disadvantaged communities, particularly minority and low-income populations. These communities are often located closer to facilities that produce high amounts of pollutants, exposing them to higher levels of air and water pollution. For example, Black and Hispanic Americans are exposed to significantly higher levels of particulate matter pollution than the general population. Additionally, the social costs of carbon emissions, such as the spread of diseases, decreased food security, and coastal vulnerabilities, further exacerbate the health risks associated with fossil fuel usage.
The economic costs of air pollution from fossil fuels are substantial. A study estimated the economic cost of air pollution in sectors regulated under the Clean Air Act to be $9 trillion between 1970 and 2000. These costs include expenses resulting from pollution-induced early mortality, illness, healthcare costs, and lost productivity. Additionally, the International Monetary Fund (IMF) attributed $7 trillion in societal costs to the burning of fossil fuels, including local air pollution, climate change, road accidents, and congestion. While repealing subsidies for fossil fuels is challenging, doing so could potentially free up significant funds for investment in low-carbon technologies and accelerate the transition to clean energy.
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Clean energy investment
Despite the urgent need to curb human-induced climate change, governments continue to spend billions of dollars on fossil fuels, with public financial support for fossil fuels exceeding USD 1.7 trillion globally in 2022. This includes subsidies, investments by state-owned enterprises, and lending from public financial institutions. However, there is also a significant push towards investing in clean energy and reducing emissions.
In the United States, over the past four quarters, $277 billion was invested in clean energy, clean vehicles, building electrification, and carbon management technology, a 13% increase from the previous year. Investment in deploying technology to decarbonize energy and industrial production in the US has totalled $164 billion over the past two years, with energy technologies accounting for the majority of this investment. The most rapid growth in investment has occurred in emerging climate technologies, such as clean hydrogen, sustainable aviation fuels, and carbon management.
China has also significantly increased its share of global clean energy spending, rising from a quarter to almost a third in the past decade. China's strategic investments cover a wide range of technologies, including solar, wind, hydropower, nuclear, batteries, and electric vehicles. Despite these positive developments, spending patterns remain uneven globally, with many developing economies, especially in Africa, struggling to mobilize capital for energy infrastructure.
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Frequently asked questions
In 2022, global public financial support for fossil fuels exceeded USD 1.7 trillion, a record high. Fossil fuel subsidies in 2022 reached USD 1.3 trillion.
In 2022, G7 countries spent USD 20 billion on fossil fuels, twice as much as they spent on clean energy.
Fossil fuel subsidies in the US were USD 649 billion in 2015 and close to 7% of America's gross domestic product in 2006. If the US continues on a business-as-usual energy path, fossil fuel spending is likely to total an estimated USD 23 trillion between 2010 and 2030.
