Sylvie Willis
Fossil fuel subsidies in the United States have been a topic of concern for various stakeholders, including government officials, economists, and environmental advocates. While the exact amount of subsidies provided by the US government to the fossil fuel industry is subject to debate, it is estimated that taxpayers pay approximately $20 billion annually. This figure, however, may be an underestimation as the true costs of climate dangers are often underestimated in studies. The London School of Economics highlights how the cascading effects of ecological and economic system disruptions can lead to irreparable damage with far-reaching consequences. The negative impacts of fossil fuel extraction and consumption extend beyond the environment, affecting public health, local economies, and societal well-being. Despite the existence of alternative energy sources, the US continues to rely heavily on fossil fuels, with oil and gas extraction representing about 5% of GDP. As a result, the country faces a challenging transition towards cleaner energy sources, requiring careful policy design and implementation to ensure a sustainable future.
| Characteristics | Values |
|---|---|
| Annual cost of fossil fuels to the US economy | $700 billion to $1 trillion |
| Amount spent by American consumers and businesses on fossil fuels in 2006 | $921 billion |
| Amount spent by American consumers and businesses on fossil fuels in 2008 | $1 trillion |
| Amount the US is expected to spend on fossil fuels by 2030 | $360 billion more per year than in 2006 |
| Amount the US is expected to spend on fossil fuels between 2010 and 2030 | $23 trillion |
| Amount the US could spend on fossil fuels between 2010 and 2030 if prices increase | Over $30 trillion |
| Percentage of US energy supply derived from fossil fuels | 85% |
| Amount US localities, states, tribes, and the federal government generated from fossil fuels between 2015 and 2020 | $138 billion annually |
| Percentage of state and local revenues in Wyoming, North Dakota, Alaska, and New Mexico that come from fossil fuels | 14% |
| Percentage of state and local revenues in Wyoming that come from fossil fuels | Over 50% |
| Amount the US government could save by repealing a tax deduction for coal and other hard mineral fossil fuels between 2012 and 2016 | $173 million |
| Amount the Joint Committee on Taxation estimated would be generated by eliminating tax breaks for intangible drilling costs in 2017 | $1.59 billion |
| Amount generated over the next ten years by eliminating tax breaks for intangible drilling costs | $13 billion |
| Amount EXIM lent or issued in grants to fossil fuel projects between 2001 and 2018 | $14.8 billion |
| Amount EXIM financed for US mining exports in 2010 | $900 million |
| Amount EXIM lent to the power sector in 2009 | $4.5 billion |
| Amount US taxpayers pay to the fossil fuel industry annually | $20 billion |
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What You'll Learn
Taxpayers pay $20 billion to the fossil fuel industry annually
In the United States, taxpayers pay about $20 billion to the fossil fuel industry every year. This figure is a conservative estimate of direct subsidies to the industry, with 20% allocated to coal and 80% to natural gas and crude oil. According to the US Senate Committee on the Budget, this subsidy provides "little if any benefit" in terms of job creation, lower prices at the pump, or increased energy security for the country. Instead, it grants the fossil fuel industry a "license to pollute for free," resulting in harmful effects on local air pollution and human health.
The true cost of fossil fuels extends beyond the monetary value of subsidies. Fossil fuel externalities, including societal, environmental, and health costs, are often overlooked in policy mechanisms that incentivize fossil fuel production. For example, researchers from Harvard found that pollutants from oil and gas combustion cause approximately 8.7 million premature deaths annually worldwide. Additionally, the London School of Economics suggests that studies often underestimate the harm of climate dangers by failing to account for cascading effects across ecological and economic systems.
The International Energy Agency reported that fossil fuel handouts reached a global high of $1 trillion in 2022, coinciding with Big Oil's record-breaking $4 trillion income in the same year. This surge in subsidies can be attributed to governments supporting consumers and businesses during the recent spike in energy prices caused by geopolitical conflicts and economic recovery. As a result, fossil-fuel subsidies rose by $2 trillion over the past two years, with explicit subsidies more than doubling to $1.3 trillion.
While the fossil fuel industry receives substantial financial support, it contributes a relatively small percentage to the country's GDP. Oil and gas extraction represent only about 5% of the United States' GDP, while other sectors like farming, manufacturing, healthcare, and clean energy account for a larger share. Despite this, the industry wields significant political influence, which has resulted in the continuation of outdated subsidies embedded within the tax code.
As public awareness of the true costs of fossil fuels grows, there is increasing pressure to phase out explicit and implicit subsidies. Removing these subsidies would prevent premature deaths, raise government revenues, and put emissions on a path toward meeting global warming targets. However, this transition must be carefully managed to support vulnerable communities and ensure a just energy transition.
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Fossil fuels generated $138 billion for US governments
Fossil fuels generated $138 billion for US government bodies between 2015 and 2020. This figure includes money made by US localities, states, tribes, and the federal government. Fossil fuels are a significant source of revenue for the US government, but this may not always be the case. As fossil fuels lose their dominance in the energy market, government revenues from this source are expected to decline.
The $138 billion generated by fossil fuels is vital for funding essential public services. In Wyoming, North Dakota, Alaska, and New Mexico, more than 14% of total state and local revenues come from fossil fuels. In Wyoming, this number rises above 50%. Fossil fuel revenues are used to fund schools, public health, and infrastructure.
Despite the economic benefits of fossil fuels, there are also significant costs associated with their use. The US economy is heavily dependent on fossil fuels, with 85% of the country's energy supply derived from these sources. This dependence is costly for citizens, as it sends valuable dollars overseas and out of the domestic economy. The US spent $921 billion on fossil fuels in 2006, and this figure is expected to increase to $360 billion more per year by 2030 compared to 2006. The total spending on fossil fuels between 2010 and 2030 is estimated to be $23 trillion.
In addition to the economic costs, there are also environmental and health costs associated with fossil fuel use. Fossil fuel production and use damage the environment and contribute to global warming, which could inflict massive economic damage. Sea level rise and more severe storms could put cities like New York, Miami, and New Orleans at greater risk of costly storm damage. The health impacts of fossil fuels are also significant, with researchers from Harvard finding that pollutants from oil and gas combustion cause 8.7 million premature deaths annually.
To address the economic and environmental costs of fossil fuels, there have been calls to phase out fossil fuel subsidies. It is estimated that ending these subsidies could prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and reduce global carbon dioxide emissions. However, removing fuel subsidies can be challenging, and governments must carefully design and implement reforms to ensure a smooth transition to cleaner energy sources.
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Fossil fuel spending could reach $23 trillion by 2030
Fossil fuel subsidies have surged to a record $7 trillion, with governments supporting consumers and businesses during the global spike in energy prices. The removal of explicit and implicit fossil fuel subsidies would prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track toward reaching global warming targets. It would also redistribute income as fuel subsidies benefit rich households more than poor ones. However, removing fuel subsidies can be challenging, and governments must carefully design, communicate, and implement reforms as part of a comprehensive policy package.
In the United States, fossil fuel expenditures are expected to surpass $1 trillion in 2011, and by 2030, expenditures will be $750 billion more per year than in 2006. Oil prices are a significant factor in higher expenditures. If oil prices reach $200 per barrel by 2030, the United States will spend $1.3 trillion on oil alone. By following U.S. government projections for energy consumption and fossil fuel prices, the country will spend an estimated $23 trillion on fossil fuels between 2010 and 2030. This amount is equivalent to three years' worth of income for the entire American workforce at current earning rates.
The costs of continuing on the current energy path are significant. American consumers and businesses already spend roughly $700 billion to $1 trillion each year on coal, oil, and natural gas. Additionally, there are the incalculable costs of pollution from fossil fuels, causing damage to health and the environment. Transitioning to a clean energy economy could result in significant savings, with the potential to cut global warming emissions and save consumers and businesses $465 billion annually by 2030.
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 derived from this source. Fossil fuels generated approximately $138 billion each year for US localities, states, tribes, and the federal government between 2015 and 2020. However, as the energy market shifts towards clean energy, the loss of these revenue streams will significantly impact communities reliant on fossil fuel revenues.
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Fossil fuel subsidies cost the US government $7 trillion
Fossil fuel subsidies have imposed a heavy burden on the US government, with a staggering cost of $7 trillion. This figure underscores the significant financial support provided to the fossil fuel industry, which has drawn criticism from various quarters. The subsidies have surged by $2 trillion in the past two years, with explicit subsidies more than doubling to $1.3 trillion. This development stands in stark contrast to the growing awareness of the environmental and economic costs associated with fossil fuel consumption.
The United States has a long history of government intervention in energy markets, with numerous subsidies embedded in the tax code to promote the production of cheap fossil fuels. These subsidies have contributed to unparalleled economic growth over the past century. However, circumstances have changed, and today's domestic fossil fuel industries are highly profitable, even as renewable alternatives gain traction. Despite this, the US government continues to allocate substantial funds to subsidize the fossil fuel industry, to the detriment of other sectors.
The economic and environmental costs of fossil fuel dependence are significant. The US economy is heavily reliant on fossil fuels, with fossil fuel expenditures expected to reach approximately $360 billion more per year by 2030 compared to 2006. This dependence sends valuable dollars overseas, weakening the domestic economy. Additionally, the environmental impact of fossil fuel combustion, including global warming and air pollution, inflicts further damage on the country's economy and citizens' quality of life.
The health consequences of fossil fuel use are also profound. Researchers from Harvard found that pollutants from oil and gas combustion contribute to 8.7 million premature deaths annually. The extraction of these fuels has been linked to higher rates of birth defects and childhood leukemia, disproportionately affecting communities near extraction sites. Furthermore, the true costs of fossil fuels are often underestimated, as the London School of Economics highlights, due to a failure to account for cascading effects across ecological and economic systems.
The high cost of fossil fuel subsidies has prompted calls for reform. Removing explicit subsidies and imposing corrective taxes on fossil fuels would lead to higher fuel prices, encouraging firms and households to consider environmental costs in their decisions. This, in turn, could significantly reduce global carbon dioxide emissions, improve air quality, and reduce the incidence of lung and heart diseases. Additionally, scrapping explicit and implicit fossil fuel subsidies is projected to prevent 1.6 million premature deaths annually and raise government revenues by $4.4 trillion.
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Fossil fuel combustion costs the US economy $422 billion in damages
The US has a long history of government intervention in energy markets, with various subsidies in place to promote the production and consumption of fossil fuels. These subsidies have contributed to the country's economic growth over the past century by keeping energy prices low. However, economists argue that these subsidies provide "little if any benefit" in terms of jobs, lower prices, or increased energy security. The true cost of fossil fuels is much higher than the price we pay, as the environmental and health impacts are often not reflected in the market price.
The IMF estimates that consumers did not pay for over $5 trillion of environmental costs associated with fossil fuel consumption last year. This number would almost double if we valued the damage to the climate at levels found in a recent study published in the scientific journal Nature. The London School of Economics also reports that studies often underestimate the harm of climate dangers by failing to account for how hazards can cascade across ecological and economic systems.
The health impacts of fossil fuel combustion are significant. Researchers from Harvard found that pollutants from oil and gas combustion were responsible for 8.7 million premature deaths annually. Fossil fuel extraction also takes a toll on human health, especially in children, with higher rates of birth defects and childhood leukemia found in communities around extraction sites.
The economic costs of fossil fuels are also high. Between 2015 and 2020, fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government. However, this revenue stream is expected to decline as the energy market shifts towards clean energy alternatives. Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues, and the loss of this income will have major implications for these states. Nevertheless, the total spending on fossil fuels in the US is projected to increase, with an estimated $23 trillion expected to be spent between 2010 and 2030.
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Frequently asked questions
The USA is estimated to pay between $700 billion and $1 trillion each year for fossil fuels.
Fossil fuels generated roughly $138 billion each year for US localities, states, tribes, and the federal government.
The USA's biggest source of fossil fuels is petroleum, which costs $16.53 per million British thermal units.
The USA depends on fossil fuels for 85% of its energy supply.
The USA's dependence on fossil fuels has led to irreparable damage to human well-being, ecosystems, and the economy. It has also resulted in higher rates of birth defects and childhood leukemia in communities around oil and gas extraction sites.
