There has long
been a perception that the U.S. and other countries heavily subsidize fossil
fuel production. This is simply not true. Subsidization is quite mild compared
to other energy sources and is often oriented toward mitigating the risk
inherent in exploring for new fossil fuel resources. Those who exaggerate
fossil fuel subsidy levels are often those who oppose or want to phase out
fossil fuels. They often also argue that the fossil fuel industry is being
subsidized by not being penalized for its emissions. Of course, we also know
that such penalization would penalize energy consumers. While the situation
with emissions needs to be addressed, that is certainly not the way to do it.
It would be impractical and economically harmful, having disproportionate
effects on the poor.
Paul Tice of the National
Center for Energy Analytics gives an analysis of the situation and real data on
actual subsidy levels for fossil fuels and other energy sources, including
renewables. He notes that environmental groups have twisted the issue by
tracking industry subsidy data in a way that is unfair and inaccurate. As a
result, there is quite a bit of misunderstanding as well as debate about fossil
fuel subsidies.
“The problem with much of these data is the flawed
methodology used to estimate fossil fuel subsidies. Rather than simply
measuring budgetary outlays, interpolation is often used—even for the
straightforward concept of explicit government subsidies. Some of these data
watchdogs have even taken a stab at calculating so-called implicit fossil fuel
subsidies—that is, failing to charge companies for the supposed environmental
or health costs of their energy generation. This is a theoretical exercise that
serves only to cloud the issue and confuse the public.”
He calls out the IEA for
calling for the removal of all fossil fuel subsidies, as well as calling for an
end to fossil fuel investment. These, again, are highly impractical and would
hurt the poor. Socialist UN leader António Guterres has long called for an end
to fossil fuels. Tice also mentions the IMF as calling for a phase-out of
fossil fuels.
The reality for U.S. fossil
fuel subsidies, he says, is as follows:
“In the U.S., federal financial interventions and
subsidies for the energy sector take four main forms: income tax
expenditures for particular corporate and individual taxpayers (e.g.,
industry-specific expense deductions and tax liability credits); direct
expenditures to nonfederal recipients (both producers and consumers)
through a grant, loan, or other means of financial assistance; research
and development (R&D) support through basic research,
leading to the development of new forms of energy supply and improvements to
existing technologies; and loan guarantees, mainly from the U.S.
Department of Energy (DOE) Loan Programs Office, to reduce the cost of
borrowing for new clean energy technologies. Of these four categories, income
tax expenditures are the main federal subsidy provided to the coal, crude oil,
and natural gas industries. In its latest report on the topic, the U.S. Energy
Information Administration (EIA) estimated that tax expenditures represented
84% of the total financial support provided to fossil fuels in fiscal year 2022
and 85% over the fiscal 2016–22 period.”
He also points out that the bulk of
oil & gas and coal subsidies involve expensing treatment for capital
expenditures that are similar to those of other industries, including mining,
timber, and agriculture. Most fossil fuel subsidies are expense-related tax
deductions. The graph below of tax expenditures expressed as revenue losses to
the federal government shows that renewables deprive the government of more
than ten times the revenue as fossil fuels.
Tice also reveals that:
“The U.S. provides much less financial support to its
domestic fossil fuel industry than other nations.”
Figure 2 below shows that EU
fossil fuel subsidies skyrocketed after the outbreak of war in Ukraine. It also
shows that the vast bulk of fossil fuel subsidies are aimed at the consumer. In
the EU, the subsidies were given to consumers in the wake of skyrocketing gas,
LNG, and electricity prices. The EU was overleveraged in the energy transition,
allowing its domestic oil & gas production to decline in favor of growing
renewables deployment and overleveraged toward Russian pipelined gas and oil.
Figure 2 shows explicit subsidy data compiled by the
Organisation for Economic Co-operation and Development (OECD), which is derived
from government tax and budget records. This compares with both the IEA and IMF
subsidy databases, which interpolate explicit subsidies from energy prices to
calculate undercharging for supply costs, an approach that typically results in
overstatement. While organized differently, the OECD’s numbers for the U.S. are
broadly consistent with the energy subsidy figures of the EIA and the tax
expenditure estimates of the U.S. Treasury. This provides a useful frame of
reference, despite the OECD’s view that such resources would be better spent on
“the transition towards net zero emissions.”
Tice also strongly criticizes
the IMF’s calculations of so-called “implicit” fossil fuel subsidies, those
related to the negative business externality of carbon emissions. He mentions
the IMF’s numbers for 2022, which, for those implicit subsidies, amount to $5.7
trillion, or roughly 12 times the $474 billion of explicit subsidies calculated
by the OECD for the same year. He explains below that they are highly
subjective and misleading:
“Theoretically, it is the sum of all the ancillary
environmental and social costs of using fossil fuels that are not being charged
back to the industry; it is not a government subsidy, implicit or otherwise.”
“Besides being highly subjective, the scope of the
so-called externalities being factored into the IMF’s implicit fossil fuel
subsidies renders these numbers almost meaningless.”
He gives a final statement
that reflects the realities that fossil fuel subsidies are a drop in the bucket
and that 90% of energy subsidies go to renewable energy and other clean energy
sources.
“In fiscal year 2025, explicit government subsidies in
the form of tax expenditures for the U.S. energy sector totaled $64.1 billion,
eclipsing those for every other domestic industry. As previously discussed, the
lion’s share ($57.9 billion, or 90%) of these energy subsidies flowed to
renewables and clean energy users, not to fossil fuels. Repealing all
government subsidies (both tax and direct expenditures) for fossil fuel
producers would have no meaningful impact on the profitability of the
traditional energy industry or, for that matter, domestic demand for
hydrocarbons. Most (if not all) of the minimal government financial support
currently provided to crude oil, natural gas, and coal companies could easily
be eliminated as part of any comprehensive tax reform effort—perhaps in return
for an end to the repeated regulatory and legal attacks against the fossil fuel
industry, most recently seen during the Biden administration. However, there is
no point in discussing the curtailment of total U.S. energy-sector subsidies
without addressing their main driver: all the generous tax credits for
renewables and clean energy still contained in the Internal Revenue Code.
Despite the OBBBA spin, income tax expenditures for renewable energy producers
and clean energy users will continue to dwarf those for the traditional energy
sector for the foreseeable future, until these climate-related tax perks start
to sunset toward the end of the decade.”
References:
Setting
the Record Straight on U.S. Fossil Fuel Subsidies. Paul H. Tice. National
Center for Energy Analytics. December 17, 2025. Setting the
Record Straight on U.S. Fossil Fuel Subsidies - National Center for Energy
Analytics
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