What is a fossil fuel subsidy?
A fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers or lowers the price paid by energy consumers. There are a lot of activities under this simple definition—tax breaks and giveaways, but also loans at favorable rates, price controls, purchase requirements and a whole lot of other things.
How much money does the U.S. government provide to support the oil, gas and coal industries?
In the United States, credible estimates of annual fossil fuel subsidies range from $10 billion to $52 billion annually yet these don’t even include costs borne by taxpayers related to the climate, local environmental, and health impacts of the fossil fuel industry. As of July 2014, Oil Change International estimates U.S. fossil fuel subsidies at $37.5 billion annually, including $21 billion in production and exploration subsidies.
How much money do governments provide to support the oil, gas, and coal industries internationally?
Internationally, governments provide at least $775 billion to perhaps $1 trillion annually in subsidies. This figure varies each year, but it is consistently in the hundreds of billions. Greater transparency would allow for more precise figures.
You can find more information on the breakdown of national and international subsidies at our interactive website: ShiftTheSubsidies.org.
U.S. Subsidies FAQ:
What are the estimates of fossil fuel subsidies in the United States?
As of July 2014, Oil Change International estimates the total value of U.S. subsidies to the fossil fuel industry at $37.5 billion annually, including international finance. This does not include military, health, climate, or local pollution costs. These subsidies have increased dramatically as U.S. oil and gas production has increased.
Many numbers circulate as estimates of U.S. fossil fuel subsidies. This explainer details what those numbers actually represent:
$2.4 Billion: subsidies to the Big Five producers debated and defeated in the Senate in 2011 and 2012
The Repeal Big Oil Tax Subsidies Act, sponsored by Senator Menendez (D-NJ) was debated and defeated by the Senate for two years running, and would have eliminated $2.4 billion in annual tax deductions for the five major oil companies: BP, Exxon, Chevron, Shell and ConocoPhillips.
Although the move would have been an initial step, it’s just the tip of the iceberg. So called “independent” oil companies are hardly small businesses. Major integrated oil companies also include Occidental, Amerada Hess, Marathon, Murphy Oil and dozens of others. Together, these companies produced 53.5 percent of U.S. oil in 2009.
$4 Billion: Subsidy cuts President Obama proposed in every budget he has sent to Congress
President Obama has proposed cutting certain subsidies to the oil and coal industries every year he’s been in office. The projections for savings have varied slightly each year but always hover around $4 billion annually. Congress has never even agreed to vote on all of them.
$10 billion. Pre “All of the Above” low end credible comprehensive estimates. Several independent estimates of U.S. fossil fuel subsidies all arrived at roughly this number, although they consider slightly different things. Recent studies include those conducted by Management Information Services, Environmental Law Institute, and the Organization for Economic Cooperation and Development – OECD. (The OECD numbers compiled and analyzed here.)
The Sanders / Ellison “End Polluter Welfare Act” also clocked in at $11.3 billion annually – and was also proposed and estimated prior to the U.S. oil and gas production boom.
$18.5 billion: Oil Change International 2014 estimate: federal exploration and production subsidies. Since President Obama took office in 2009, federal fossil fuel production and exploration subsidies have grown in value by 45 percent, from $12.7 billion to a current total of $18.5 billion. This rise is mostly due to increased oil and gas production: the value of tax breaks and other incentives has increased along with greater production and profits, essentially rewarding companies for accelerating climate change.
$21.6 billion: Adding in the states we have data for, the United States as a whole provided $21.6 billion in production and exploration subsidies to the oil, gas, and coal industries in 2013.
$32.8 billion: Adding in consumption subsidies at the Federal and State levels which are on the order of $11 billion a year. Thus the total annual value of all known U.S. state and federal fossil fuel exploration, production, and consumption subsidies is $32.8 billion.
$37.5 billion: U.S. financing of fossil fuel projects overseas increased by 14 percent from $4.1 billion in 2009 to $4.7 billion in 2013, driven by an increase in bilateral oil and gas project lending. This brings the U.S. fossil fuel subsidy total for consumption, production, exploration, and international finance to a staggering $37.5 billion annually.
$52 billion. Highest credible comprehensive estimate (pre All of the Above energy). Includes some costs associated with defending pipelines and shipping lanes in the Persian Gulf. Earth Track, an NGO that specializes in subsidy valuation, estimates that annual oil, gas and coal subsidies total about $52 billion annually.
What are the additional public costs of fossil fuels?
Health: A 2009 report by the National Academy of Sciences claims that burning fossil fuels results in about $120 billion per year in health-related costs.
Infrastructure spending: The United States is already committed to spending at least $1.6 trillion additional dollars per year in maintenance, new vehicles and fuel. We built our power transmission lines on the assumption of large, remote power plants. We build our houses and industries on the assumption of cheap electricity; those practices, codes and regulations are still embedded in our construction and manufacturing sectors. We built our power transmission lines on the assumption of large, remote power plants.
Costs from climate change: The costs of accelerating climate change are staggering and certainly greater than the costs of ending our dependence on fossil fuels.
Military expenditures: The U.S. spends $10.5 to $500 billion annually to defend overseas oil interests. While exact estimates of oil-related military spending vary, it is clear that oil is an important driver of U.S. military force in the Persian Gulf. Taxpayers are paying a huge unaccounted-for price for oil imports, not to mention the political destabilization and lives lost due to military force in the region – casualties of the insatiable U.S. thirst for oil.
Overall costs borne by taxpayers related to the military, climate, local environmental, and health impacts of the fossil fuel industry are credibly estimated between $360 billion and $1 trillion each year – in the United states alone. You can find more information on these additional costs in our latest fossil fuel subsidies report.
Whatever the numbers, it seems ludicrous that any of our tax dollars would support such established and profitable industries. These energy subsidies are completely out of step with a nation that now broadly accepts the need to end our collective oil addiction and fight global warming.
Why is there such a big range in estimates of fossil fuel subsidies?
First, accounting methods and exact definitions of subsidies vary. Second, while environmental and consumer groups tend to calculate the total amount of revenue to the American taxpayer that these subsidies cost, others note that “many subsidies have a higher value to recipients than their direct cost to the government.” In other words, the higher values are more indicative of the corporate welfare given to the already highly profitable oil industry annually, while the more conservative figures are a better estimate of how much the elimination of these subsidies would save the U.S. taxpayer.
Finally, some of the highest estimates include a portion of defense spending (more info on defense subsidies to oil here and here). It should be noted that while the estimate of $53 billion in fossil fuel subsidies annually does include some of the cost of U.S. military “defense” of the Persian Gulf region, it does not specifically incorporate any increase in defense spending relating to Iraq, or any quantification of the environmental externalities associated with oil. And none of the amounts cited include fossil fuel subsidies in the form of international aid, which is explained in greater detail on this page.
Oil Change International’s U.S. subsidy estimates are largely based on foregone revenue to the federal government due to tax breaks and favorable policy measures and are closely aligned with the OECD and WTO subsidy definitions.
One major obstacle to greater action both domestically and internationally is information. To help ensure we can reduce or eliminate fossil fuel subsidies successfully, we have to know how many of them there are. Governments need to stop hiding their handouts to oil, gas and coal and come clean.
What are the benefits from removing fossil fuel subsidies?
One of the most obvious benefits of ending fossil fuel subsidies is increasing the availability of public money. Additionally, ending excessive and wasteful support for fossil fuels would reduce greenhouse gas emissions that lead to global warming.
The money saved from fossil fuel subsidies could be used to promote clean energy and energy efficiency alternatives, which would be in line with public opinion. A 2010 poll by Stanford University found that 84 percent of people are in favor of giving companies tax breaks to produce more electricity from water, wind, and solar power; 81 percent want more fuel efficient cars that use less gasoline; 80 percent want more appliances that use less electricity; and 80 percent want more home and office buildings that require less energy to heat and cool.
What is the U.S. government doing to end fossil fuel subsidies?
For the last several years, President Obama has proposed eliminating $4 billion in oil and gas subsidies from the U.S. budget. While these are not all the subsidies that this mature and very profitable industry enjoys, they are some of the most obvious. But Congress hasn’t yet approved President Obama’s budget cuts.
Fossil fuel subsidies have come up in Congress – and rightly so! – in discussions of ways to cut government expenditures in order to balance the budget. In the spring of 2011, there was a push by some legislators to remove subsidies that target only the major oil companies – in particular, the “Big Five” (BP, Exxon, Chevron, Shell, ConocoPhillips). While this would end some of the oil subsidies, it would unfortunately exclude a number of huge companies such as Valero, Koch Industries, Occidental, Anadarko, Amerada Hess, Marathon, Murphy Oil and a number of more diversified energy companies that also produce large quantities of the nation’s oil and gas.
In the fall of 2011, there was some hope that fossil fuel subsidy reduction could be included in the Super Committee’s proposal to Congress for $1.5 trillion in deficit-reduction measures over the next ten years. There was support in Congress for this: In an October letter to the Super Committee, 36 House Democrats urged the committee to end subsidies to the fossil fuel industry that would save up to $122 billion over the next ten years.
But in the end, it proved to be an uphill battle to get the Super Committee to take a stand on fossil fuel subsidies – and perhaps that’s not so surprising, given the influence of fossil fuel industry money on the Super Committee. Eight Super Committee members received over $300,000 in contributions from the fossil fuel industry since 1999: Senators Baucus (D-MT), Kyl (R-AZ), Portman (R-OH), and Toomey (R-PA), and Representatives Camp (R-MI), Clyburn (D-SC), Hensarling (R-TX), and Upton (R-MI).
Since 2011, there have been a number of additional congressional proposals, but none have found the traction necessary to meaningfully reform our taxpayer handouts to Big Oil, Gas, and Coal.
Attempts to reduce subsidies have failed at least in part because of the cozy relationship between Congress and the fossil fuel industry. In 2011-12, oil, gas, and coal companies spent $329 million in campaign finance contributions and lobbying expenditures and received $33 billion in federal subsidies over the same two years – a more than 10,000 percent return on investment.
What can I do to help end fossil fuel subsidies in the United States?
How do we transform oil companies into energy companies and jumpstart the new energy economy? The first step is a Separation of Oil & State – including an end to governmental subsidies to Big Oil and an investment in renewable energy alternatives and energy efficiency instead.
You can also take action immediately by signing onto the petition at the top of the page.
International Subsidies FAQ:
How do international fossil fuel subsidies break down?
No matter how conservatively the numbers are calculated, eliminating global fossil fuel subsidies represent a tremendous opportunity for increased efficiencies in spending, reductions in global reliance on fossil fuels and greenhouse gas emissions, and sources of finance for climate-related activities and other efforts.
Our most recent compilation of estimates indicates that global fossil fuel subsidies are at least $775 billion and up to $1 trillion annually, and quite possibly much higher. Download our fact sheet that breaks this down and calls for increased transparency here.
The estimates included in the global subsidy compilation include:
- $630 Billion in Consumption Subsidies in Developing Countries (International Energy Agency)
- $45 Billion in Consumption Subsidies in Developed Countries (Organization for Economic Cooperation and Development)
- $100 Billion in Producer Subsidies in Developed Countries (Organization for Economic Cooperation and Development)
- $80 to $285 Billion in Production Subsidies in Developing Countries
- $15 to $150 Billion in Financing from International Financial Institutions (IFIs) and National Development Banks
- $50 to $100 Billion in Financing through Export Credit Agencies (ECAs)
- $20 to $500 Billion for Securing Fossil Fuel Supplies (Military Subsidies for Fossil Fuels)
In total, this adds up to as much as $1 trillion annually in fossil fuel subsidies.
In addition, a recent report by the International Monetary Fund estimated that if negative externalities (eg costs to our health and climate) from energy consumption are included in subsidy estimates, that global subsidies could total as much as $1.9 trillion.
Our latest analysis of G20 government support for oil, gas, and coal companies found that governments across the G20 countries are estimated to be spending $88 billion every year subsidizing exploration for fossil fuels. This report documents, for the first time, the scale and structure of fossil fuel exploration subsidies in the G20 countries.
The evidence points to a publicly financed bailout for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2ºC.
Who needs to act to eliminate international fossil fuel subsidies?
Ultimately, national governments need to act to reduce the subsidies to the oil, gas and coal industries. There are also a number of international forums that can facilitate action on fossil fuel subsidies:
- United Nations Framework Convention on Climate Change (UNFCCC) — read more on what should be done at the UNFCCC
- The G20 – they agreed to phase out inefficient subsidies over the medium-term in 2009, but followup has been lackluster and limited action at the national level has been taken.
The G8 — read the statement from G8 leaders which included support for fossil fuel subsidies phase out.
Didn’t President Obama and the G20 announce an end to fossil fuel subsidies?
No. The Obama Administration and the G20 nations proposed that they end “inefficient” fossil fuel subsidies. Although this process has generated some new studies and data, so far zero subsidies have actually been eliminated as a result.
What are the challenges of ending fossil fuel subsidies internationally?
The principle is simple and clear: You can’t really say you’re committed to the fight against climate change if you’re still funding oil and coal. Many global leaders including the leaders of the G-20 nations, U.N. Secretary General Ban Ki Moon, Sir Nicholas Stern, Al Gore, and Sir John Browne (the former Chief Executive of BP) have all spoken out against the ongoing practice of subsidizing fossil fuels with public funds. But care needs to be taken in how – and what kinds – of subsidies are eliminated and in what time frame.
To equitably phase out fossil fuel subsidies, it is important to consider the difference between the dominant types of subsidies in industrialized vs. developing countries, namely production subsidies vs. consumption subsidies.
In the U.S. and the rest of the industrialized world, we generally have production subsidies, which also serve as corporate welfare to the oil, gas, and coal industries. They return the favor with lavish campaign contributions. These subsidies should be immediately eliminated.
But in the developing world, consumption subsidies, which try to make access to energy and fuel affordable to the poor, are far more common. As mentioned above, consumption subsidies may reach the hundreds of billions annually, which makes them the largest subsidies when excluding the military and wars for oil. However, the intent of these subsidies is generally not to increase consumption of fossil fuels per se—rather it’s often simply to help make access to energy and transport affordable in developing countries.
Therefore, eliminating consumption subsidies is likely not the place to start leveling the playing field for clean energy. Like raising prices on U.S. consumers, it’s likely to provoke a backlash in developing countries, ensuring gridlock for years to come.
So where do we start internationally to level the playing field on clean energy?
A great place to start eliminating fossil fuel subsidies in the developing world would be to end international subsidies via institutions like the World Bank, regional development banks, and export credit agencies like the U.S. Export-Import Bank, or the Overseas Private Investment Corporation. These institutions actually use our tax dollars to build infrastructure for fossil fuel extraction and use in the developing world. These funds should instead be used to promote energy efficiency and renewable energy infrastructure. Recently this has started to happen with coal finance in particular.
Over the past few years, the World Bank and the major regional development banks gave over $40 billion in loans, grants, and equity to the fossil fuel industry. Export credit agencies gave billions more. All of this money could instead be important sources of public funds for clean energy.
Resources and Reports:
- Report: The Fossil Fuel Bailout: G20 Subsidies for Oil, Gas and Coal Exploration (2014)
- Report: Cashing in on All of the Above: U.S. Fossil Fuel Production Subsidies Under Obama (2014)
- Report: Too Big to Ignore: Subsidies to Fossil Fuel Master Limited Partnerships (2013)
- Report: World Bank Accelerating Coal Development in Indonesia (2013)
- Fact Sheet: Fossil Fuel Subsidies vs. Fast Start Climate Finance in Annex 2 Countries (2012)
- Fact Sheet: No Time to Waste: The Urgent Need for Transparency in Fossil Fuel Subsidies (2012)
- Report: Phasing Out Fossil-Fuel Subsidies in the G20: A Progress Update (2012)
- Report: Low Hanging Fruit: Fossil Fuel Subsidies, Climate Finance, and Sustainable Development (2012)
- Report: Irrational Exemption: Tar sands pipeline subsidies and why they must end (2012)
- Report: Unclear on the Concept: How Can the World Bank Group Lead on Climate Finance Without an Energy Strategy? (2011)
- Report: Payback Time? The Super Committee and Fossil Fuel Subsidies (2011)
- Report: World Bank Group Energy Financing: Energy for the Poor? (2011)
- Report: Dirty is the New Clean: A Critique of the World Bank’s Strategic Framework for Development and Climate Change (2008)
Looking for more information on fossil fuel subsidies and their elimination?
- Have a look at a statement from 75 NGOs around the world, calling on leaders to take concrete steps to eliminate these subsidies.
- Read statements supported by over 50 world leaders in G20, APEC and elsewhere, which call for fossil fuel subsidy phase out
- Read our fact sheet addressing concerns about the impact of subsidy reform on the poor
- See how much money international development banks are sending to the fossil fuel industry in developing countries: www.ShiftTheSubsidies.org
- Read reports from intergovernmental agencies outlining details on fossil fuel subsidies and their phase out.
- See who else in the NGO community is working on fossil fuel subsidies
- Check out all of the prominent figures who have been quoted speaking in support of phasing out fossil fuel subsidies
- Explore the work of the governments within the Friends of Fossil Fuel Subsidy Reform
- Read key press reports on international fossil fuel subsidies