An iinteresting breakdown by FRAC TRACKER. There are a lot of similarly themed sources that are essentially in harmony aabout major factors influencing gas prices. Big money, big oil, and big exploitations of the public by power mongers have us over a barrel. It is only going to get worse. We all know who is in bed with who. Deep pockets are only going to get greased further. I know who is going to pay and who is going to exploit profit at our expense.......hugely.
Despite claims of free-market competition, the U.S. fossil fuel industry benefits from an estimated $760 billion annually through subsidies, tax breaks, and unpriced externalities, with direct government subsidies alone accounting for
$10 to $52 billion per year. These policies distort energy markets, hinder renewable energy growth, and cost taxpayers billions. In this article, FracTracker Alliance explores the real cost of fossil fuel dependence and the policies enabling it.
Energy Freedom? Not Without Billions in Subsidies
Letās talk about energy freedom and the free market. If you listen to many conservative policymakers and think tanks, youāll hear these terms thrown around a lot. The idea is that by removing government intervention, we can unleash innovation, lower costs, and secure energy independence. But what if I told you that the fossil fuel industryāthe sector that these same voices championāis anything but a free market?
On an episode of The Daily Show, host Jon Stewart
pointed out a contradiction in U.S. energy policy: āHow about we just take $3 billion in subsidies we give to oil and gas companies that already turn billions in profits?ā The
response from some industry sympathizers was swift, who argued that these arenāt really subsidies, just standard tax deductions available to all businesses. But this argument misses the point.
What are Fossil Fuel Subsidies?
Fossil fuel subsidies are direct financial incentives and tax breaks provided by governments to oil, gas, and coal industries. These subsidies lower production costs and distort energy markets, costing taxpayers billions annually while delaying the transition to cleaner energy alternatives.
The fossil fuel industry benefits from several provisions in the U.S. tax code that directly reduce its tax burden. While itās difficult to pinpoint the single largest contributor without detailed government budget data and economic modeling, the
Expensing of Intangible Drilling Costs (IDCs) and
Percentage Depletion Allowance are generally considered to be the major direct subsidies that benefit the U.S. fossil fuel industry. As shown in
Table 1, these are just two of many tax breaks available to the fossil fuel industry, though other subsidies likely contribute to a lesser extent.
Beyond broad-based provisions in the U.S. tax code, subsidies also manifest in state-level exemptions. For example, it is common for
liquefied natural gas (LNG)plants in Texas and Louisiana to obtain exemptions on property taxes. Louisianaās Industrial Tax Exemption Program (ITEP) exempts industrial facilities from property taxes for ten years, and Texas offers a similar program. While such property tax exemptions may seem minor, they add up to enormous sums. According to a recent analysis from the Sierra Club, nine proposed and existing LNG facilities in Texas and Louisiana are
set to receive a combined $21.6 billion in property tax exemptions over ten years.
FOSSIL FUEL SUBSIDIES IN THE U.S.
| SUBSIDY | TYPE | DESCRIPTION |
|---|
| Percentage Depletion Allowance | Direct | Allows fossil fuel producers to deduct a fixed percentage (typically 15%) of their gross income from oil and gas properties. |
| Expenses of Intangible Drilling Costs (IDCs) | Direct | Permits companies to immediately deduct drilling-related costs, such as labor and materials, from taxable income. |
| Master Limited Partnerships (MLPs) | Direct | Enables energy companies to structure as partnerships to avoid corporate income taxes and pass profits directly to investors. |
| Royalty Relief on Federal Lands | Direct | Reduces or waives royalties that companies must pay for extracting oil and gas on federal lands to incentivize production. |
| Low-Interest Loans & Loan Guarantees | Direct | Provides favorable financing terms or government-based guarantees for fossil fuel projects to lower borrowed costs. |
| Research & Development Fundings | Direct | Allocates federal funds for developing new technologies to enhance fossil fuel extraction and utilization. |
| Public Land Leasing at Below-Market Rates | Indirect | Offers leases for oil and gas exploration on public lands at rates below market value to reduce operating costs. |
| Environmental Liability Limitations | Indirect | Caps the financial responsibility of companies for environmental damages, potentially transferring cleanup costs to taxpayers. |
| Tax Deductions for Refining Infrastructure | Indirect | Provides tax incentives for investments in refining and processing infrastructure, reducing taxable income. |
| Defense & Military Protection of Oil Supply | Indirect | Involves military expenditures to secure global oil supply lines, indirectly supporting the fossil fuel industry, estimated to cost the U.S. a minimum of $81 billion per year. |
| Climate & Health Externalities | Indirect | Represents the societal costs of fossil fuel-related pollution and climate change, including healthcare expenses and environmental degradation. |
Table 1. A breakdown of direct and indirect fossil fuel subsidies in the U.S., including the various tax breaks, financial incentives, and government support mechanisms that lower production costs and shield the oil and gas industry from market risks. These subsidies range from tax deductions and favorable financing to military protection and environmental cost externalization, illustrating the extent to which public funds sustain the fossil fuel sector.
Who Really Pays for Oil and Gas Subsidies? You do.
In a truly free market, the fossil fuel industry would compete without government help. Instead, a complex web of subsidies props up fossil fuel ventures, sheltering them from the true forces of supply and demand. For example, a
2017 study in Nature Energy found that nearly half of new U.S. oil fields wouldnāt be viable without this support. This dependence on subsidies is particularly concerning, as a recent analysis by FracTracker reveals that even in states like California with purported regulatory oversight,
the financial health of some oil and gas operators is marginal. These tax advantages shield oil and gas companies from real market risks, which means that unprofitable fossil fuel venturesābusinesses that would otherwise fail in a competitive marketāare kept afloat at the expense of the public.
But the story doesnāt end with preventing failure. These same subsidies also amplify success. While many fossil fuel projects teeter on the brink of profitability and require constant government assistance, others are wildly profitable, generating billions of dollars in revenue each year. These profits flow to shareholders, inflate executive compensation packages, and further entrench the industryās political power. In effect, taxpayer dollars not only prevent the collapse of unviable projects but also contribute to the extraordinary wealth accumulated by the most successful fossil fuel companies. Both extreme failure and extreme fortune within the fossil fuel industry are, ironically, bankrolled by the public.
This dynamic exemplifies a regressive economic policy. While funded by general tax revenue collected from all citizens, the primary beneficiaries of these subsidies are disproportionately wealthier corporations and investors. This effectively transfers wealth upward and creates unequal footing for those who cannot afford such energy investments. Meanwhile, the broader public bears the burden of environmental degradation and associated health costs, often disproportionately impacting lower-income communities and marginalized populations who lack the resources to mitigate these negative consequences.
THE ILLUSION OF SAVINGS
Fossil fuels often appear deceptively affordable for consumers, but low retail prices are an illusion created by underpricing that does not account for the full scope of their impact. And while we might not see the true cost reflected at the pump or on our energy bill, we pay the price in countless other ways. The
International Monetary Fund (IMF) estimates that global fossil fuel subsidiesāwhich include direct subsidies as well as the
unaccounted costs of climate change, pollution-related health issues, and environmental damageāreached a staggering $7 trillion in 2022, with the U.S. accounting for nearly 35% of the global total.
These subsidies incentivize the reckless extraction and burning of fossil fuels, fueling climate change, polluting our air and water, and destroying precious habitats. Air pollution alone triggers a cascade of health problemsārespiratory illnesses, heart disease, and moreāwhich drives up healthcare costs for everyone. Furthermore, every dollar funneled into propping up fossil fuels is a dollar not invested in cleaner, sustainable energy sources, stifling innovation and job creation in those sectors. The IMF research shows how the apparent savings are dwarfed by the long-term burden we all shoulder, a hidden cost of ācheapā energy paid through environmental disasters,
public health emergencies, military expenditures, and a stifled economy. And letās be clear: itās the taxpayer who ultimately foots the bill, not only through direct subsidies but also through the costs that oil and gas companies pass off to the public.
U.S. FOSSIL FUEL SUBSIDIES BREAKDOWN (2022)
| Subsidy Category | Type | Description | Estimated Cost in 2022 |
| Explicit Supply Cost Underpricing | Direct | Fossil fuels are sold below the true supply cost due to price controls and government support. | $44 billion |
| Tax Breaks & Direct Financial Support | Direct | Includes tax incentives, royalty relief, and direct funding for fossil fuel companies. | $20 billion |
| Environmental Externalities | Indirect | The unaccounted costs of climate change, pollution-related health issues, and environmental damage. | $500 billion |
| Foregone Tax Revenue | Indirect | Government tax incentives, deductions, and exemptions that reduce fossil fuel company tax burdens. | $196 billion |
Table 2. The $760 billion in U.S. fossil fuel subsidies
reported by the International Monetary Fund (IMF) for 2022 represents an annual estimate for that year. The IMFās analysis indicates that these subsidy levels can fluctuate annually due to factors like energy price changes, policy adjustments, and shifts in consumption patterns.
The Truth About the Free Market
The narrative of a free market in energy is a convenient fiction, particularly when it comes to fossil fuels. The truth is that the idea that fossil fuels thrive in a free market is a myth. The industry has been shielded by decades of favorable policies, tax breaks, and government handouts that keep prices artificially low and bog down the transition to cleaner energy. While policymakers who decry government intervention in markets continue to guarantee billions in subsidies for oil and gas companies, taxpayers ultimately
foot the billāfunding these subsidies and paying for the long-term consequences of a system rigged in favor of polluting industries.
If policymakers genuinely believed in free-market principles, they would eliminate fossil fuel subsidies and allow energy sources to compete equitably, including the costs of pollution and climate impacts. This means ensuring that renewables have equal access to infrastructure investment and fair regulations. If weāre serious about energy freedom, itās time to yank the lifeline of subsidies propping up fossil fuels and force them to compete in a truly open market.
REFERENCES
Where to Learn More
Despite the substantial profits amassed by major oil and gas corporationsāexceeding $250 billion between 2021 and 2023āProject 2025 proposes policies that would further benefit these industries. This includes offering more public lands and waters for oil and gas exploration and development, effectively increasing the subsidies and financial advantages these companies already receive. Curious how Project 2025 could expand fossil fuel subsidies while blocking clean energy progress?
I am certain no one is subsidizing me. I won't even cite what I pay in property tax or income tax. I don't mind being a contributor to the good of the commons, but it would be nice if everyone paid their fair share. They don't have to. They tell us how smart they are as if it is noble...........really.
