Mercedes Mullins
Fossil fuel subsidies are a significant global issue, with estimates of the total subsidies ranging from $1 trillion to $7 trillion. In the United States, fossil fuel subsidies totaled $757 billion in 2022, including $3 billion in explicit subsidies and $754 billion in implicit subsidies. The federal government provides various tax breaks and incentives to the fossil fuel industry, such as the tax credit for oil and natural gas extraction and preferential treatment of coal royalties. These subsidies have come under increasing scrutiny due to their environmental and societal costs, with proposals to reduce or eliminate them gaining traction. The Biden-Harris Administration's FY 2024 budget request, for example, aims to eliminate 13 fossil fuel tax preferences, which could reduce the federal deficit by $31 billion over ten years.
| Characteristics | Values |
|---|---|
| Fossil fuel subsidies in the United States in 2022 | $757 billion |
| Explicit subsidies | $3 billion |
| Implicit subsidies | $754 billion |
| Fossil fuel subsidies in the United States in 2022 according to the International Monetary Fund | $7 trillion |
| Fossil fuel subsidies in the United States in 2022 according to the International Energy Agency | $1 trillion |
| Fossil fuel subsidies in the United States in 2022 according to some estimates | $20 billion |
| Implicit subsidies in the United States according to the IMF | $646 billion |
| Federal tax subsidies for coal in 2022 | $590 million |
| Federal tax subsidies for coal in 2016 | $1.9 billion |
| Fossil fuel tax preferences and credits to be eliminated in the Biden-Harris Administration’s FY 2024 budget request | 13 |
| Total savings from the Biden-Harris Administration’s FY 2024 budget request | $96.9 billion |
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What You'll Learn
- Fossil fuel subsidies in the US totalled $757 billion in 2022
- Fossil fuel subsidies are projected to grow as developing countries increase consumption
- Fossil fuel tax breaks and societal costs
- Fossil fuel subsidies are a threat to healthcare, insurance, coastal economies, and wildfire areas
- Fossil fuel subsidies are projected to cause 1.6 million premature deaths annually
Fossil fuel subsidies in the US totalled $757 billion in 2022
Fossil fuel subsidies in the US have been a significant concern, with a total of $757 billion directed towards the industry in 2022. This includes $3 billion in explicit subsidies and a staggering $754 billion in implicit subsidies. These implicit subsidies are costs that society bears, such as negative health impacts and environmental degradation, which are not reflected in the prices of fossil fuels. According to the International Monetary Fund (IMF), the US is among the top subsidizers of fossil fuels, with a significant portion coming from taxpayer dollars.
The federal government has attempted to address this issue through various measures. The Biden-Harris Administration's FY 2024 budget request, for instance, aims to eliminate 13 fossil fuel tax preferences and credits, which could reduce the federal deficit by almost $31 billion over ten years. Additionally, modifications to the taxation rules for the foreign income of US oil and gas companies are proposed, potentially saving $66 billion. The End Oil and Gas Tax Subsidies Act of 2023 (R.1483) and the People Over Petroleum Act (R.1743) also aim to repeal fossil fuel tax breaks and provide Americans with rebates from the elimination of subsidies.
However, removing fuel subsidies is a complex issue. While it could generate significant revenue and contribute to slowing climate change, it must be handled carefully to avoid adverse effects on vulnerable households. A comprehensive policy package is necessary to ensure a smooth transition and underscore the benefits of reform.
The US has also provided federal funding for fossil fuels through initiatives such as the Department of Energy's (DOE) Office of Advanced Fossil Energy R&D, the Loan Guarantee Program, and the National Energy Technology Lab. These programs offer project loans, grants, and guarantees to support the industry's competitiveness and fund research and development projects. Additionally, the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) have provided subsidies for carbon capture, utilization, and storage projects, with plans for implementation in several US oil, gas, and petrochemical facilities.
Despite these efforts to support the fossil fuel industry, it's important to recognize the potential dangers associated with these subsidies. As Sen. Whitehouse stated, "we are subsidizing the danger." The negative externalities associated with fossil fuel consumption, including air pollution and global warming, impose enormous environmental and health costs on society. Researchers from Harvard found that pollutants from oil and gas combustion cause approximately 8.7 million premature deaths annually.
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Fossil fuel subsidies are projected to grow as developing countries increase consumption
Fossil fuel subsidies are a significant global issue, with estimates of their cost ranging from less than $1 trillion to $7 trillion. In 2022, the International Monetary Fund (IMF) reported that fossil fuel subsidies reached a record $7 trillion. This surge in subsidies was largely due to governments supporting consumers and businesses during the spike in energy prices caused by the war in Ukraine and the economic recovery from the pandemic.
The vast majority of subsidies are implicit, as environmental costs are often not reflected in prices for fossil fuels, especially coal and diesel. For example, in the United States, fossil fuel subsidies in 2022 totaled $757 billion, including $3 billion in explicit subsidies and a substantial $754 billion in implicit subsidies. These implicit subsidies include costs like negative health impacts and environmental degradation that are borne by society rather than producers.
The issue of implicit subsidies is particularly relevant in developing countries, which tend to have higher-polluting power plants, factories, and vehicles, as well as dense populations living and working close to these pollution sources. As developing countries increase their consumption of fossil fuels toward the levels of advanced economies, implicit subsidies are projected to grow. This trend is concerning as it contributes to global warming and local air pollution, with significant health and environmental consequences.
To address this challenge, some have proposed removing explicit subsidies and imposing corrective taxes on fossil fuels. This approach would increase fuel prices, encouraging firms and households to consider environmental costs when making consumption and investment decisions. It is estimated that such a shift could prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and significantly reduce carbon dioxide emissions.
However, removing fuel subsidies is a complex task. Governments must carefully design, communicate, and implement reforms as part of a comprehensive policy package that emphasizes the benefits. A portion of the increased revenues could be used to compensate vulnerable households for higher energy prices, cut taxes, and fund essential areas such as education, healthcare, and clean energy initiatives.
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Fossil fuel tax breaks and societal costs
Fossil fuel subsidies in the United States totalled $757 billion in 2022, 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. Conservative estimates put US direct subsidies to the fossil fuel industry at roughly $20 billion per year, with 20% allocated to coal and 80% to natural gas and crude oil.
There is a long history of government intervention in energy markets, and numerous energy subsidies exist in the US tax code to promote or subsidize the production of cheap and abundant fossil energy. Some of these subsidies have been in place for a century, and while they may have been relevant and beneficial at the time of implementation, circumstances have changed. Today, the domestic fossil fuel industries are mature and highly profitable, and renewable energy technology is increasingly cost-competitive.
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. Over 10 years, these proposed changes would reduce the federal deficit by almost $31 billion. In addition, the budget proposes modifications to the taxation rules for the foreign income of US oil and gas companies, which would save another $66 billion, for a total savings of $96.9 billion.
The End Oil and Gas Tax Subsidies Act of 2023 (R.1483) and the People Over Petroleum Act (R.1743) are also proposals to repeal fossil fuel tax breaks. The former would provide Americans a $500 rebate from the elimination of the subsidies.
Removing fuel subsidies can be tricky, and governments must design, communicate, and implement reforms clearly and carefully. However, addressing fossil fuel externalities could save taxpayers billions of dollars in societal costs and improve the health and quality of life for many people, especially in vulnerable communities that are disproportionately affected by the negative health and environmental impacts of fossil fuel combustion and extraction.
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Fossil fuel subsidies are a threat to healthcare, insurance, coastal economies, and wildfire areas
Fossil fuel subsidies are a threat to several sectors of the economy, including healthcare, insurance, coastal economies, and wildfire areas.
Healthcare
The World Health Organization (WHO) declared in 2018 that "climate change is the greatest challenge of the 21st century, threatening human health and development". The combustion of fossil fuels releases greenhouse gases, particularly carbon dioxide, black carbon, methane, and nitrous oxide, which have detrimental effects on human health. The health sector must address the challenge of reducing its own carbon footprint while also adapting to the impacts of climate change to better serve vulnerable populations.
Insurance
Insurance companies have become some of the biggest financiers of fossil fuels, which are the primary drivers of climate change. While some insurers, such as Italy's largest insurer, Generali, have started to distance themselves from the fossil fuel industry, U.S. insurers have generally continued their support. This has created a vicious cycle where insurers invest their customers' premiums in fossil fuel companies, accelerating climate change and increasing the risk of wildfires, storms, and flooding. As a result, insurers are dropping coverage for millions of homeowners to avoid losses, threatening public interest and financial stability.
Coastal Economies
Fossil fuel subsidies contribute to climate change, which poses a significant threat to coastal economies. The effects of climate change, such as rising sea levels and intensifying storms, can lead to coastal erosion, flooding, and infrastructure damage, impacting industries such as tourism, fisheries, and coastal communities that depend on the ocean for their livelihood. Additionally, the lack of clean energy alternatives due to fossil fuel subsidies hinders the development of more sustainable and resilient coastal economies.
Wildfire Areas
Wildfires are becoming more frequent and intense due to the effects of climate change, which is driven in large part by the combustion of fossil fuels. The increased frequency and severity of wildfires pose a direct threat to communities in wildfire-prone areas, leading to property damage, displacement of residents, and loss of life. The economic and social impacts of wildfires can be significant, and the costs of firefighting and recovery efforts can be substantial, placing a strain on government budgets and local economies.
In conclusion, fossil fuel subsidies pose a significant threat to healthcare, insurance, coastal economies, and wildfire areas. The negative impacts of climate change, driven in part by the continued support for the fossil fuel industry, are far-reaching and pose risks to human health, financial stability, and the environment. Addressing these threats requires a shift away from fossil fuel subsidies and towards investments in clean energy and climate change mitigation and adaptation measures.
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Fossil fuel subsidies are projected to cause 1.6 million premature deaths annually
Fossil fuel subsidies are a significant global issue, with estimates ranging from $1 trillion to a staggering $7 trillion annually. In 2022, the International Monetary Fund (IMF) reported that fossil fuel subsidies reached a record $7 trillion, a surge of $2 trillion since 2020. This amount is more than four times the previous estimate of $1.5 trillion. The United States' contribution to this figure was $757 billion in 2022, including $3 billion in explicit subsidies and $754 billion in implicit subsidies.
The high cost of fossil fuel subsidies is not just financial. The environmental and health costs are significant, with millions of premature deaths attributed to air pollution caused by fossil fuels. The IMF estimates that scrapping explicit and implicit fossil fuel subsidies would prevent 1.6 million premature deaths annually, a significant reduction in the human cost of burning fossil fuels.
The health impacts of fossil fuel subsidies are far-reaching. Air pollution, primarily from the release of harmful local pollutants like fine particulates, contributes to premature deaths. The external costs of fossil fuel use include local health damages, such as lung and heart disease, and traffic congestion and accident externalities associated with road fuels. These costs are often implicit and challenging to convert into monetary terms, but they represent a substantial burden on society.
The removal of fossil fuel subsidies is projected to have numerous benefits. It would reduce air pollution, generating cleaner air and improving public health. Additionally, it would contribute significantly to slowing climate change by reducing global carbon dioxide emissions. The IMF estimates that removing subsidies would put emissions on track to reach global warming targets, with a 43% reduction in projected global fossil fuel CO2 emissions by 2030 compared to 2019 levels.
While removing fossil fuel subsidies is challenging, it is possible. 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 ten years. Additionally, the budget proposes modifications to the taxation rules for the foreign income of U.S. oil and gas companies, saving another $66 billion. These efforts demonstrate a commitment to phasing out fossil fuel subsidies and promoting a healthier and more sustainable future.
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Frequently asked questions
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.
Implicit subsidies are the costs like negative health impacts and environmental degradation that are borne by society at large rather than producers.
Explicit subsidies are the classic definition of a subsidy, which is "money that is paid by a government or an organization to reduce the costs of services or of producing goods so that their prices can be kept low."
Fossil fuel subsidies are largely administered by the Department of Energy (DOE) through initiatives like the Office of Advanced Fossil Energy R&D, the Loan Guarantee Program, and the National Energy Technology Lab. These subsidies are meant to maintain the competitiveness of the industry.
Some examples of legislation that would reduce fossil fuel subsidies include the End Oil and Gas Tax Subsidies Act of 2023, the People Over Petroleum Act, the Inflation Reduction Act (IRA), and the Infrastructure Investment and Jobs Act (IIJA).
