Regan Brown
Fossil fuels are a major source of energy and electricity production globally, accounting for over 80% of the world's energy mix in 2023. The burning of fossil fuels, such as coal, oil, and natural gas, has been a significant driver of human development, providing energy for transportation, electricity generation, and industrial processes. However, the combustion of fossil fuels also has detrimental environmental and health impacts, including air pollution, global warming, and the release of radioactive materials. While the consumption of coal is declining in many parts of the world, oil and gas consumption continues to grow. The vast majority of global subsidies are allocated to fossil fuels, amounting to a record $7 trillion in subsidies in 2023. Removing these subsidies and imposing corrective taxes could significantly reduce global carbon emissions, improve air quality, and increase government revenues. Despite the availability of renewable alternatives, the phase-out of fossil fuels and the transition to cleaner energy sources pose economic challenges, particularly for governments and communities heavily reliant on fossil fuel revenues.
| Characteristics | Values |
|---|---|
| Fossil fuel subsidies in 2023 | $7 trillion |
| Fossil fuel subsidies in 2019 | $16 billion a day |
| Fossil fuel industry profits in 2022 | $200 billion |
| Fossil fuel industry profits in 2021 | $2.8 billion a day |
| Fossil fuel industry profits in the last 50 years | $52 trillion |
| Fossil fuel industry's contribution to global warming | 85% of all global subsidies |
| Fossil fuel consumption since 1950 | Increased eight-fold |
| Fossil fuel consumption since 1980 | Doubled |
| Fossil fuel consumption since 1800 | Increased significantly |
| Fossil fuel consumption in the future | Likely to increase as developing countries increase consumption |
| Fossil fuel consumption shift | From coal to oil and gas |
| Fossil fuel electricity production | Gas is the second largest source |
| Fossil fuel electricity production shift | From coal to gas |
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What You'll Learn
Fossil fuel subsidies
The total amount of fossil fuel subsidies globally is disputed, depending on the definition used and the methodology for estimation. Under a narrow definition, fossil fuel subsidies totalled around $1.5 trillion in 2022, while under a more expansive definition, they totalled around $7 trillion. This $7 trillion figure is supported by the IMF, which also breaks down the subsidies into explicit subsidies (18%) and implicit subsidies (82%). Explicit subsidies occur when the retail price is below a fuel's supply cost, while implicit subsidies occur when environmental costs are not reflected in prices for fossil fuels, and consumers do not pay for environmental costs. According to the IMF, fossil fuel subsidies surged by $2 trillion over the past two years, with explicit subsidies more than doubling to $1.3 trillion.
The distribution of fossil fuel subsidies varies across regions. Explicit subsidies are found in the Middle East and North Africa (MENA), Europe, the Commonwealth of Independent States (CIS), and East Asia and the Pacific (EAP). Total subsidies (explicit and implicit) are predominantly found in the EAP region. Relative to regional GDP, total subsidies for Europe and North America are the smallest at about 3%, while subsidies are 23% of regional GDP in CIS and 19%, 10%, and 10% respectively in MENA, South Asia, and EAP.
The removal of fossil fuel subsidies is a complex issue. On the one hand, removing subsidies would reduce air pollution, generate revenue, and contribute significantly to slowing climate change. It would also reduce energy security concerns related to volatile fossil fuel supplies. Additionally, scrapping explicit and implicit fossil fuel subsidies is projected to prevent 1.6 million premature deaths annually, increase government revenues, and help achieve global warming targets. However, removing subsidies can also lead to higher energy prices for vulnerable households and indirect price increases in other areas, such as food prices. Governments must carefully design, communicate, and implement reforms to fossil fuel subsidies as part of a comprehensive policy package.
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US revenues from fossil fuels
Fossil fuels generate substantial revenue for the US federal government, states, tribes, and localities. Between 2015 and 2020, fossil fuels generated approximately $138 billion each year for these entities. This revenue is derived from upstream (production), midstream (transportation and processing), and downstream (consumption) fossil fuel use.
However, as the world transitions to cleaner energy sources, the US government revenues from fossil fuels are expected to decline. This decline will occur even in the absence of new climate policies. Petroleum product taxes, the largest source of revenue from fossil fuels, will decrease under all scenarios. Oil and gas extraction, the second-largest revenue source, is expected to remain stable under current conditions but will decline more rapidly if the global temperature rise is limited to 1.5°C. Coal revenue is projected to decline dramatically, reaching zero by 2040 under both the 2°C and 1.5°C scenarios.
The loss of revenue from fossil fuels will significantly impact certain regions and communities. States like Wyoming, North Dakota, Alaska, and New Mexico are highly dependent on fossil fuel revenues, with more than 14% of total state and local revenues coming from this industry. In Wyoming, fossil fuels contribute over 50% of the state's revenue. This money is crucial for funding essential services such as schools, public health, and infrastructure.
To mitigate the financial impact of the transition away from fossil fuels, governments can implement changes to tax policies and invest existing revenues into savings funds, adopt new tax policies, and diversify local economies. Additionally, the development of the clean energy sector may provide significant government revenue in the future, although the locations of this growth may differ from those currently dependent on fossil fuels.
In conclusion, while the US derives substantial revenue from fossil fuels, the transition to cleaner energy sources will result in a decline in this revenue stream. Proactive measures and policy changes are necessary to support communities and ensure a smooth transition to a more sustainable energy future.
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Fossil fuel consumption
Fossil fuels have been a key driver of industrialization and technological, social, and economic development. However, their impact on health and the environment has led to a growing need to transition to cleaner energy sources. Fossil fuel consumption has increased significantly over the past 50 years, with a shift from solely coal towards a combination of oil and gas. Oil and gas consumption is increasing quickly, while coal consumption is decreasing in many parts of the world.
The burning of fossil fuels releases carbon dioxide (CO2), making it the largest driver of global climate change. The consumption of fossil fuels also imposes enormous environmental costs, mainly from local air pollution and damage from global warming. These costs are often not reflected in the prices of fossil fuels, with consumers not paying for the full environmental impact of their consumption. This has led to a situation where fossil fuel companies profit while society bears the costs of climate change.
In 2022, the five largest fossil fuel companies (ExxonMobil, Shell, BP, Chevron, and TotalEnergies) reported a total of nearly $200 billion in profits. At the same time, the world suffered record losses due to extreme weather events, which have been worsened by climate change. Fossil fuel companies have been accused of lobbying for their interests, misleading the public about climate change, and continuing to extract and build new infrastructure that locks us into a cycle of combustion and its consequences.
Fossil fuel subsidies, which include explicit and implicit subsidies, have also played a significant role in the industry. Explicit subsidies refer to undercharging for supply costs, while implicit subsidies involve undercharging for environmental costs and forgone consumption taxes. In 2023, fossil fuel subsidies surged to a record $7 trillion globally, with consumers not paying for over $5 trillion in environmental costs. Removing these subsidies could significantly reduce global carbon emissions and improve public health, but it is a complex process that requires careful policy design and implementation to minimize the impact on vulnerable households.
While transitioning away from fossil fuels is essential, it also poses challenges for communities and regions that rely on the industry economically. For example, fossil fuels generated approximately $138 billion annually for US localities, states, tribes, and the federal government between 2015 and 2020. As the energy market shifts towards clean energy, the loss of revenue from fossil fuels will have significant implications for these communities.
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Fossil fuel companies' profits
Fossil fuel companies make enormous profits, with the combined profits of ExxonMobil, Chevron, Shell, and BP totalling over $100 billion in 2023. In 2022, the five largest oil companies (ExxonMobil, Chevron, Shell, BP, and TotalEnergies) made a cumulative profit of over $200 billion, more than doubling their profits from the previous year. ExxonMobil's profits soared to $59.2 billion, up from $23 billion in 2021. Chevron's profits rose by over 134% to $36.5 billion, and Shell recorded profits of $39.9 billion, the highest in its 115-year history.
These profits come at a significant cost to the planet and humanity. The fossil fuel industry's activities have resulted in climate change, causing extreme weather events, rising temperatures, and an increase in wildfires, floods, and severe storms. The social and economic costs of these impacts are immense, with global efforts struggling to keep up with community needs in the face of these disasters.
Despite the urgent need to transition to clean energy, fossil fuel companies continue to receive substantial government subsidies. In 2022, fossil fuel subsidies surged to a record $7 trillion globally, with explicit subsidies (undercharging for supply costs) more than doubling to $1.3 trillion. Consumers failed to pay for over $5 trillion in environmental costs associated with fossil fuel consumption, and the vast majority of these costs are implicit, as environmental impacts are often not reflected in fossil fuel prices.
Removing fossil fuel subsidies and implementing corrective taxes could significantly reduce global carbon dioxide emissions, improve air quality, and generate additional government revenues. Scrapping these subsidies is estimated to prevent 1.6 million premature deaths annually and raise revenues by $4.4 trillion, which could be used to fund vital public goods and services.
In the United States, revenues from fossil fuels are significant, contributing $138 billion annually to local, state, tribal, and federal governments. However, as the energy market shifts towards clean energy, these revenue streams are expected to decline, impacting communities that rely heavily on them.
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Fossil fuel consumption by country
Fossil fuels—oil, coal, and natural gas—remain the world's primary energy source, accounting for over 90% of carbon dioxide emissions. The United States, for instance, consumed over 19.1 million barrels of oil per day in 2022, along with 32.2 trillion cubic feet of natural gas. This generated approximately $138 billion in revenue. Despite this, the US is far from the top consumer in per capita terms. Countries like Equatorial Guinea, Estonia, and Qatar consume more than 10 tons of fossil fuels per person annually.
Russia is another significant player in the oil market, producing about 11.28% of the world's oil in 2021, with a daily consumption of 3.67 million barrels. Additionally, Russia is one of the largest consumers of natural gas, utilizing 408 billion cubic meters in 2022.
Japan, with a territory of over 145,000 square miles, ranks fifth in global fossil fuel consumption. In 2022, it consumed over 151 million metric tons of oil and imported 180.3 million tons of coal. Korea, where oil is the primary energy source, imported 960 million barrels of crude oil in 2021 and around 126 million tons of coal.
Canada, heavily reliant on oil for its transportation and industrial sectors, consumed upwards of 98 million metric tons of oil in 2022. The country also has notable coal and natural gas consumption, with usage of 390 petajoules and 101 billion cubic meters, respectively.
While the shift towards renewable energy is gaining momentum, fossil fuels still dominate the energy landscape, and the consumption patterns outlined above highlight the challenges faced in reducing global carbon emissions and mitigating climate change.
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Frequently asked questions
Fossil fuel companies have made huge profits over the years. 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. The oil and gas industry has made approximately $2.8 billion a day in pure profit for the last 50 years, which amounts to a total of $52 trillion.
Fossil fuel subsidies surged to a record $7 trillion last year. According to the IMF, fossil fuels account for 85% of all global subsidies. The removal of these subsidies would reduce air pollution, generate revenue, and contribute to slowing climate change.
In 2019, the UN Environment Programme (UNEP) published a report that highlighted the various tax breaks provided to fossil fuel companies. One such tax break is the Intangible Drilling Costs Deduction, which allows companies to deduct the majority of the costs incurred from drilling new wells domestically. The Joint Committee on Taxation (JCT) estimated that eliminating this tax break alone would generate $1.59 billion in revenue in 2017 and $13 billion over the next ten years.
