Rajan Wilcox
Fossil fuels provide substantial revenue for the US government, with the oil and gas industry generating around $138 billion annually between 2015 and 2020. In 2023, the total revenue of the US oil and gas industry reached $244.4 billion, a decrease from $330.8 billion in the previous year. However, as the market shifts towards clean energy, these revenue streams are expected to decline. Fossil fuel subsidies have surged to a record $7 trillion, with consumers not paying for over $5 trillion in environmental costs. The negative externalities of fossil fuel use have significant societal costs, impacting public health, the environment, and climate change. While fossil fuel companies make billions in profits, the world incurs record losses due to climate-related disasters, underscoring the need for a transition to clean energy.
| Characteristics | Values |
|---|---|
| Annual revenue from fossil fuels | $138 billion |
| States most dependent on fossil fuel revenues | Wyoming, North Dakota, Alaska, and New Mexico |
| Percentage of total state and local revenues from fossil fuels in the above states | More than 14% |
| Fossil fuel revenue in Wyoming | More than 50% |
| Total revenue of the US oil and gas industry in 2023 | $244.4 billion |
| US oil and gas revenue in 2022 | $330.8 billion |
| ExxonMobil's earnings in 2022 | $55.7 billion |
| Chevron's earnings in 2022 | $35.5 billion |
| Total cost of 18 climate and weather-related disasters in 2022 | $165 billion |
| Fossil fuel subsidies in 2022 | $7 trillion |
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What You'll Learn
Fossil fuels generated $138 billion annually for the US
Fossil fuels generated substantial revenue for the US federal government and many states, tribes, and localities. Between 2015 and 2020, fossil fuels generated roughly $138 billion each year for these US localities. Fossil fuel revenues are especially important for some states, such as Wyoming, North Dakota, Alaska, and New Mexico, where more than 14% of total state and local revenues come from fossil fuels. In Wyoming, over 50% of state revenue comes from fossil fuels. This money is vital for funding services like schools, public health, and infrastructure.
However, as fossil fuels lose their dominance in the energy market to clean energy, the loss of these revenue streams will significantly impact communities that rely on them. To address this challenge, communities will need support from the federal government, smart tax policies, and investments in new economic sectors, including clean energy. Clean energy may become a significant source of government revenue, but the places where these industries will boom may not be the same as those that have historically relied on fossil fuels.
The transition away from fossil fuels is crucial for mitigating climate change and reducing its devastating effects, which have caused hundreds of billions of dollars in losses worldwide. Scrapping fossil fuel subsidies, which surged to a record $7 trillion, could prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and help achieve global warming targets.
While the fossil fuel industry receives substantial government funding for research and development, it is important to consider the negative externalities associated with fossil fuel use, such as environmental, climate, and public health impacts, which totaled $5.3 trillion globally in 2015. Addressing these externalities could save taxpayers billions of dollars and improve health and quality of life for many people.
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Fossil fuel subsidies cost the US government $7 trillion
Fossil fuels generate substantial revenue for the US government. Between 2015 and 2020, fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government. However, the US government also spends a significant amount on fossil fuel subsidies. In 2022, fossil fuel subsidies amounted to $7 trillion, a surge from previous years due to government support for consumers and businesses during the global spike in energy prices caused by the Russia-Ukraine war and the economic recovery from the pandemic. This amount represents 7.1% of global GDP, more than governments spend annually on education, and about two-thirds of what they spend on healthcare.
The $7 trillion in fossil fuel subsidies includes both explicit and implicit subsidies. Explicit subsidies are direct payments to fossil fuel producers or consumers to reduce costs and keep prices low. Implicit subsidies refer to the environmental and societal costs of burning fossil fuels, such as local air pollution, climate change, and social costs like road accidents and congestion. Consumers did not pay for over $5 trillion of environmental costs associated with fossil fuels, and this number would be higher if the damage to the climate was valued at levels found in recent scientific studies.
The large majority of subsidies are implicit, as environmental costs are often not reflected in fossil fuel prices, especially for coal and diesel. Removing fossil fuel subsidies could prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track to reach global warming targets. However, removing fuel subsidies can be challenging, as governments must carefully design and implement reforms to avoid negative impacts on vulnerable households.
While the US federal funding for fossil fuels is administered by the Department of Energy, it is also distributed in the form of project loans, grants, and guarantees from organizations like the Overseas Private Investment Corporation (OPIC) and the United States Export-Import Bank (EXIM). Annual appropriations and grants directed towards the fossil fuel industry can be considered direct subsidies as they maintain the competitiveness of the industry.
The high cost of fossil fuel subsidies has significant implications for the US government and society. The revenue generated from fossil fuels is expected to decline as the energy market shifts towards clean energy sources. Policymakers and communities will need to adapt and plan ahead by adopting smart tax policies and investing in new economic sectors, including clean energy, to address the fiscal challenges posed by the transition away from fossil fuels.
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Wyoming, North Dakota, Alaska, and New Mexico are most dependent on fossil fuels
Fossil fuels generate substantial revenue for the US government, localities, states, and tribes. Between 2015 and 2020, fossil fuels generated approximately $138 billion annually for these beneficiaries. However, Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues. In these states, more than 14% of total state and local revenues come from fossil fuels, with Wyoming deriving over 50% of its revenue from this industry. This money is crucial for funding essential services such as schools, public health, and infrastructure.
Wyoming, a leading coal-producing state, obtains nearly 40% of its state revenues from severance taxes on natural gas and crude oil. North Dakota, the second-largest oil-producing state, has witnessed its reliance on severance tax revenues increase alongside the expansion of tight oil production in the Bakken region. From 2001 to 2014, North Dakota's oil production surged, resulting in a significant boost in severance tax receipts.
Alaska, heavily dependent on revenues from oil and natural gas production, relies on these sectors for up to 90% of its budget. Consequently, the state experiences fluctuations in tax receipts that mirror the volatile oil and natural gas prices. To mitigate the impact of these fluctuations, Alaska utilizes its Permanent Fund and various reserve funds.
New Mexico, the fourth state highly dependent on fossil fuel revenues, completes the quartet of states facing significant fiscal challenges as the US transitions away from fossil fuels. This transition is expected to create economic hurdles, particularly for states and communities that have historically relied on fossil fuels as their economic backbone.
While the clean energy sector may become a significant driver of future government revenue, the places where these industries emerge may not align with the regions historically reliant on fossil fuels. Policymakers and communities must navigate the complexities of adapting to new energy sources while supporting those facing the most significant transitions.
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Fossil fuel companies make billions in profit
Fossil fuel companies continue to make billions in profits, despite the worsening impacts of climate change. In 2022, ExxonMobil and Chevron, two US-headquartered companies, reported earnings of $55.7 billion and $35.5 billion, respectively. The same year, the US experienced 18 separate climate and weather-related disasters, including droughts, floods, severe storms, and wildfires, costing an estimated $165 billion. These disasters disproportionately affect vulnerable communities, including minority and low-income populations, who are often located near highly polluting facilities.
The fossil fuel industry plays a dominant role in causing climate change, and its profits come at the expense of global health and safety. As attribution science advances, researchers can more clearly demonstrate the link between human-caused climate change and extreme weather events, providing a basis for seeking compensation from fossil fuel companies for the damages they have caused.
Fossil fuel companies' profits result from high costs imposed on consumers, who are often everyday people paying increasingly high prices for natural gas, electricity, and fuel. These companies also benefit from substantial government funding and subsidies. In the US, fossil fuels generated approximately $138 billion annually between 2015 and 2020 for localities, states, tribes, and the federal government. Fossil fuel subsidies surged to a record $7 trillion globally, with consumers not paying for over $5 trillion in environmental costs.
While fossil fuel companies enrich investors through stock buybacks, they contribute to the global challenges posed by climate change. Their profits come at the expense of people struggling with the rising costs of recovering from climate disasters. As the world transitions to clean energy, addressing the externalities of fossil fuel use could save taxpayers billions of dollars and improve the health and quality of life for many.
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Fossil fuel use costs the US billions in climate disasters
Fossil fuels provide substantial revenue to the US federal government and many states, tribes, and localities. Between 2015 and 2020, fossil fuels generated roughly $138 billion each year for these beneficiaries in the US. However, the cost of fossil fuel use in the US far outweighs the fiscal benefits. Fossil fuel combustion is the leading contributor to global warming, which could cause massive economic damage through rising sea levels and more severe storms. A 2008 study estimated that high-intensity hurricanes could cause up to $422 billion in damages in Atlantic and Gulf Coast states between 2025 and 2100. The economic cost of air pollution in sectors regulated under the Clean Air Act has been estimated at $9 trillion between 1970 and 2000, with costs resulting from pollution-induced early mortality, illness, healthcare costs, and lost productivity. Consuming fossil fuels imposes enormous environmental costs, mostly from local air pollution and damage from global warming. The production and transport of fossil fuels also result in routine pollution and occasional catastrophic accidents, such as the 2008 collapse of a coal ash pond outside a Tennessee Valley Authority power plant, which cost an estimated $825 million to clean up.
Fossil fuel subsidies further complicate the issue. Subsidies for oil, coal, and natural gas surged to a record $7 trillion last year as governments supported consumers and businesses during the global energy price spike caused by the war in Ukraine and the economic recovery from the pandemic. These subsidies are costly, amounting to 7.1% of global gross domestic product, which is more than governments spend annually on education and about two-thirds of what they spend on healthcare. Moreover, fossil fuel subsidies disproportionately benefit rich households more than poor ones, exacerbating income inequality. Removing these subsidies could prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and help achieve global warming targets. However, eliminating fuel subsidies is challenging and must be carefully communicated and implemented as part of a comprehensive policy package.
In addition to the direct costs of fossil fuel use, the opportunity cost of forgoing clean energy development must be considered. Clean energy may become a significant driver of future government revenue, but the transition away from fossil fuels will create fiscal challenges for communities historically dependent on this industry. Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues, with more than 14% of total state and local revenues coming from this source. In Wyoming, fossil fuel revenue rises above 50%. Policymakers must adopt smart tax policies and invest in new economic sectors, including clean energy, to support these communities in transition.
In conclusion, while fossil fuels have generated significant revenue for the US, the costs of their use are far greater. Fossil fuel combustion leads to global warming, causing economic damage through climate change and air pollution. The subsidies provided to sustain fossil fuel consumption are extremely costly and inequitable. The transition to clean energy is necessary to avoid further economic and environmental harm, but it will require careful policy implementation to support the communities currently dependent on the fossil fuel industry.
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Frequently asked questions
Between 2015 and 2020, fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government. In 2023, the total revenue of the United States' oil and gas industry was 244.4 billion US dollars, down from 330.8 billion US dollars in 2022.
Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues. In Wyoming, more than 50% of state and local revenues come from fossil fuels.
Fossil fuel companies make billions of dollars in profits. For example, in 2022, ExxonMobil and Chevron, two companies headquartered in the United States, reported earnings of $55.7 billion and $35.5 billion, respectively.
Fossil fuel subsidies have surged to a record $7 trillion. Subsidies for oil, coal, and natural gas are costing the equivalent of 7.1% of global gross domestic product, more than governments spend on education and about two-thirds of what they spend on healthcare.
