Katerina Swanson
The US government spends a significant amount of taxpayer dollars on fossil fuel subsidies, which has led to concerns about the transition to clean energy and the impact on the environment and public health. Fossil fuel subsidies have surged to a record $7 trillion, with US taxpayers spending tens of billions of dollars annually on exploration, production, and consumption. This has direct implications for the production of oil, gas, and coal, as well as the development of clean energy alternatives. The federal government provides direct and indirect subsidies to the fossil fuel industry, with the Department of Energy administering funding through initiatives like the Office of Advanced Fossil Energy R&D and the Loan Guarantee Program. While there have been efforts to reduce subsidies and address climate change, the mature and profitable fossil fuel industry continues to receive substantial support, impacting energy markets and contributing to global warming.
| Characteristics | Values |
|---|---|
| Amount spent by the US government on fossil fuel subsidies | $20 billion per year, according to some estimates |
| Amount spent by US taxpayers on fossil fuel subsidies | Tens of billions of dollars per year |
| Amount spent by the US government on direct subsidies to renewable energy | $1.1 billion in 2016 |
| Amount spent by the US government on implicit fossil fuel subsidies | $646 billion per year |
| Amount spent by the US military to protect oil supplies | $81 billion |
| Amount spent by the US government on fossil fuel subsidies as a percentage of global GDP | 7.1% |
| Amount spent by governments on education as a percentage of global income | 4.3% |
| Amount spent by governments on healthcare as a percentage of global income | 10.9% |
| Percentage of global subsidies that fossil fuels account for | 85% |
| Amount spent by the US government on fossil fuel subsidies if explicit subsidies were removed | $4.4 trillion in additional revenue |
| Percentage of global warming that could be prevented if explicit and implicit fossil fuel subsidies were removed | 28% |
| Percentage of fossil fuel air pollution deaths that could be prevented if explicit and implicit fossil fuel subsidies were removed | 46% |
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What You'll Learn
Direct subsidies for fossil fuel production
The US government provides direct subsidies to the fossil fuel industry through specific provisions in the tax code. These subsidies are designed to support and reward domestic fossil fuel-related production. Additionally, the fossil fuel industry receives substantial funding for research and development, 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. Annual appropriations and grants directed towards the industry also constitute direct subsidies as they aim to maintain its competitiveness.
The amount of money allocated to direct subsidies for fossil fuel production is significant. According to some estimates, US taxpayers spend tens of billions of dollars each year on subsidizing fossil fuel exploration, production, and consumption. This has a direct impact on the amount of oil, gas, and coal produced, as well as hindering the development of clean energy alternatives. While the exact figures vary, it is clear that these subsidies represent a substantial portion of government spending.
The International Monetary Fund (IMF) has highlighted the high cost of fossil fuel subsidies, which include not only explicit subsidies but also implicit subsidies, or the societal costs associated with burning fossil fuels. These costs include local air pollution, climate change, road accidents, and congestion. The IMF estimates that the societal costs of fossil fuels amount to a $5.4 trillion annual subsidy worldwide, with the United States contributing $646 billion each year.
Removing direct subsidies for fossil fuel production is a complex issue. While it is generally agreed that these subsidies should be eliminated to encourage a transition to clean energy, it must be done carefully and gradually. The increased revenues from removing subsidies could be used to compensate vulnerable households for higher energy prices, cut taxes, and fund public goods such as education, healthcare, and clean energy initiatives. However, simply removing explicit subsidies is not enough, and a range of approaches are needed to address the full scope of fossil fuel subsidies.
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Tax breaks and societal costs
Fossil fuel subsidies have surged to a record $7 trillion as governments support consumers and businesses during the global energy crisis. The United States is one of the largest subsidizers of fossil fuels, spending $649 billion in 2015. These subsidies are increasing, with US fossil fuel spending projected to total an estimated $23 trillion between 2010 and 2020.
US taxpayer dollars fund many fossil fuel subsidies that are outdated but remain embedded within the tax code. The federal income tax subsidizes domestic production through the expensing of exploration, development, and intangible drilling costs; the use of percentage depletion instead of cost depletion to recover drilling and development costs; and numerous smaller incentives for production and distribution. The three largest subsidies are for excess of percentage over cost depletion, exceptions for publicly traded partnerships, pollution control, and expensing of exploration and development costs.
The fossil fuel industry also receives substantial government funding for research and development. Federal funding for fossil fuels is largely administered by the Department of Energy (DOE) through three initiatives: the Office of Advanced Fossil Energy R&D, the Loan Guarantee Program, and the National Energy Technology Lab. Annual appropriations and grants directed toward the fossil fuel industry can be considered direct subsidies, as they are related to maintaining the competitiveness of the industry.
The costs of fossil fuel production and use are massive and impose significant environmental, economic, and social costs. Fossil fuel combustion is the leading contributor to global warming, which could inflict massive economic damage. Sea level rise and more severe storms could put key cities at greater risk of costly storm damage. Fossil fuels are also a leading source of air and water pollution, with the economic cost of air pollution in sectors regulated under the Clean Air Act estimated at $9 trillion between 1970 and 2000. The production and transport of fossil fuels result in routine pollution and occasional catastrophic accidents, with large oil spills in the United States resulting in expenditure on removal costs and compensation for damages.
Addressing fossil fuel externalities could save taxpayers billions of dollars in societal costs and improve the health and quality of life for many people. The Social Cost of Carbon reflects the negative societal impacts of climate change, including the spread of diseases, decreased food security, coastal vulnerabilities, and public health costs. Removing fossil fuel subsidies would prevent 1.6 million premature deaths annually, raise government revenues, and put emissions on track toward reaching global warming targets.
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Federal funding for research and development
The American Recovery and Reinvestment Act of 2009 was an economic stimulus package of $787 billion. Of this, the Office of Fossil Energy received $3.4 billion toward fossil fuel research and development between 2009 and 2011. The funds primarily supported R&D of carbon capture and storage technologies. The Department of Energy’s Loan Programs Office (DOE LPO) was created in 2005 to provide loans to innovative energy, tribal energy, and advanced auto manufacturing projects. While the DOE LPO is primarily focused on financing renewable and efficiency technologies, it has also designated $8 billion for loans to advanced fossil fuel projects that aim to avoid or sequester greenhouse gases.
In FY 2022, the federal government spent $121 million on research and development (R&D) for natural gas and petroleum liquids, up from $105 million in FY 2021 and $107 million in 2020. Federal funding for coal R&D totaled $280 million in FY 2022, compared to $500 million in 2021 and $338 million in 2020. In 2023, Congress allocated $890 million to the Department of Energy’s Fossil Energy and Carbon Management (FECM) office, a 7.9% increase. The FY 2024 budget requested $905 million for FECM.
The exact amount of federal funding for research and development in the fossil fuel industry is difficult to determine as subsidies can be defined in different ways and come from various sources. However, it is clear that the US government provides significant financial support for fossil fuel R&D through various initiatives and programs.
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US military spending to protect oil supplies
The US military's spending to protect oil supplies is a contentious issue, with various estimates and conflicting arguments. While some reports and studies have attempted to quantify the direct and indirect costs associated with defending global oil supplies, the specific amount attributed to military spending is challenging to ascertain due to the complex nature of defence budgets and the opportunity costs involved.
According to a 2018 study, the US military spends approximately $81 billion annually to defend global oil supplies. This amount translates to a subsidy of about $30 per barrel or $0.70 per gallon of oil for US consumers, who ultimately bear this cost through their taxes. This estimate is supported by other sources, including a report by Securing America's Future Energy (SAFE) and articles from reputable publications. The $81 billion represents about 16% of recent DoD base budgets and is a significant expense aimed at securing fossil fuels for the American market.
However, it is important to note that government agencies like the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) officially put the cost of defending global oil supplies at zero. This controversial stance is based on the assumption that defence budgets would not decrease if the money was not spent on protecting oil supplies, resulting in no savings to taxpayers. In their view, assigning a cost to the oil protection mission is pointless.
Critics of this approach argue that it fails to acknowledge the opportunity costs associated with protecting global oil supplies. Retired military leaders and members of SAFE's council, including former Secretary of the Navy John Lehman and General Duncan McNabb, emphasize that reducing dependence on oil could lead to a decreased military presence in the Gulf. The funds saved could then be redirected towards other critical military priorities, such as cybersecurity or hypersonic weapons development. This perspective highlights the potential for more efficient allocation of resources by reducing the focus on defending oil-rich regions.
The relationship between the US military and the protection of oil supplies has been described as "toxic," with allegations of neglect towards the needs of US citizens and the environment. The pursuit of oil interests has allegedly led to alliances with autocratic regimes, the empowerment of autocrats, and the perpetuation of colonialist oppression and ecological ruin. Additionally, increased military spending to protect oil supplies can fuel climate change and injustice, particularly in regions of the global South, where military intervention for oil can have devastating consequences for the environment and local livelihoods.
In conclusion, while the exact amount of US military spending to protect oil supplies may be difficult to pinpoint due to budgetary complexities and differing methodologies in cost calculations, the significant financial commitment is undeniable. The debate surrounding this issue underscores the complex interplay between energy security, foreign policy, military intervention, and the opportunity costs associated with defending global oil supplies.
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Government intervention in energy markets
Historically, governments have intervened in energy markets through subsidies, tax breaks, and other financial incentives to promote the production and consumption of fossil fuels. These interventions have resulted in lower prices for consumers and supported the expansion of the fossil fuel industry. However, there is growing recognition that these interventions have contributed to climate change and hindered the development of renewable energy sources.
In recent years, there has been a push for governments to phase out subsidies for fossil fuels and redirect support towards renewable energy sources. For example, at the COP26 climate summit, world leaders agreed to phase out "inefficient" subsidies for fossil fuels, recognizing that these subsidies artificially lower the price of coal, oil, and natural gas. Despite these pledges, the progress in phasing out subsidies has been slow, and governments worldwide still spend billions of dollars each year subsidizing the fossil fuel industry.
The UK government, for instance, has been criticized for providing an estimated £17.5 billion in subsidies to the fossil fuel industry annually, while failing to sufficiently support renewable energy sources. However, the government has defended its position by arguing that fossil fuels are still necessary for energy security and transitioning to net zero. At the same time, the UK has made efforts to support renewable energy, such as through the Non-Fossil Fuel Obligation (NFFO) for electricity supply, which has assisted in the development of renewable fuels.
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Frequently asked questions
The US government spends tens of billions of dollars a year subsidizing new fossil fuel exploration, production, and consumption.
Fossil fuel subsidies are financial support from the government to fossil fuel companies to encourage activities like exploration, extraction, and development.
The US government provides subsidies to the fossil fuel industry to promote or subsidize the production of cheap and abundant fossil energy.
Removing fossil fuel subsidies can lead to increased fuel prices, encouraging firms and households to consider environmental costs and potentially reducing global carbon emissions.
The US government provides subsidies through various initiatives, including direct payments, tax breaks, grants, and loans.
