Why Are We Still Subsidizing Fossil Fuels?

Subsidies can support nascent industries in need of a foothold or serve the public good. At this point, fossil fuels are neither.

The standard right-wing talking points about clean energy are hollow at best, and rage-inducing at worst. It’s always some variation on the same basic narrative. Clean energy isn’t ready to supply Americans’ needs because it’s too expensive and unreliable; electric vehicles and other clean tech can’t compete without subsidies; the energy transition will happen on its own terms and within its own time frame, but we should drill and double down on oil and gas in the meantime. These are the public justifications, as made clear in Donald Trump’s “Big Beautiful Bill,” which has now passed the House and currently sits with the Senate. In his “Unleashing American Energy” Executive Order, from President Trump’s very first day in office, he hits these points hard, saying that “burdensome and ideologically motivated regulations have impeded the development of these resources, limited the generation of reliable and affordable electricity” and that it’s “in the national interest to unleash America’s affordable and reliable energy and natural resources.” But contrary to this narrative, it’s actually fossil fuel use that’s beginning to die a slow death, and is in need of subsidies and market manipulation to maintain dominance. It’s time we stopped providing this edge.

The Senate has given itself a deadline of July 4 to make changes to the gigantic bill, ask for a new House vote, and send the legislation to the President for a signature. Despite some controversy in both the House and Senate negotiations, the holdouts on the Republican side of the aisle (all of the Democrats will oppose the bill, but that won’t matter) seem more concerned about the proposed cuts to Medicaid and the debt ceiling, and less concerned about the repeal of clean energy incentives passed through the Biden administration’s Inflation Reduction Act.

In the most recent version of the bill, released by the Senate Finance Committee, there are enough cuts to halt America’s clean energy momentum. Solar and wind power both take big hits, basically losing all government incentives over the coming years. Energy storage incentives are spared, and geothermal, hydroelectric, and nuclear incentives will also be extended. That’s good. But EVs and home energy improvements will basically be eliminated. It’s worth remembering that solar and wind are the cheapest technologies for new power generation projects, and we’re at a critical juncture with electricity demand increasing more than anyone thought it would, due to electrification of things like household appliances and commercial equipment, as well as AI and data center growth. Renewables advocates are pinning their hopes on just a handful of Republican senators, notably Thom Tillis of North Carolina, to salvage at least something of the incentive system created by the IRA. The battle is still being waged, and for clean energy advocates, winning is so difficult in large part because while one side does a great job of hammering its talking points and pulling the wool over the eyes of the public, the other is unable to articulate meaningful counterpoints that meet people where they live. 

 

 

The conservative argument is exemplified by remarks like those of Energy Secretary Chris Wright. At an event with the Alliance for Responsible Citizenship on the 18th of February, he correctly pointed out that the modern world was built on hydrocarbons. The 20th century and the incredible industrial growth that has changed all of our lives is undeniably a product of coal, oil, and gas. But he suggests that this historical dominance is necessarily predictive of the future and makes vague allusions to “obvious scale and cost problems” with clean energy. This is an absurd argument. It’s just weaponizing common but misinformed sentiment. The fact is that the legacy energy system—read, the fossil fuel industry—is the most heavily subsidized ‘free market’ on the planet. And we now have alternatives that pollute less, cost less, and improve energy security and stability. Wind and solar power have long been the cheapest source of new electricity generation. Why would China have brought online more than 350 gigawatts of solar and wind in 2024, shattering its 2030 goal six years early, if not for the fact that it’s sensible and costs less? The modern Republican party was partially built on the rhetoric of free-market conservative ideals, but current Republican policy actions suggest that what they really want is a market that’s distorted in fossil fuel companies’ favor through policy and regulatory mechanisms, as well as subsidies. 

Global subsidies for the consumption of oil and gas exceeded $1 trillion in 2022. That’s not a typo; we’re talking about more than a trillion dollars per year in the form of direct grants, vouchers, tax reductions and price regulations. And that’s only counting explicit subsidies. The International Monetary Fund published a study in late 2023 that counted implicit subsidies, like undercharging companies for environmental costs or giving them tax breaks on consumption, which translates to government revenue that is sacrificed to artificially lower the cost of things like gasoline or heating fuel for consumers. That rounded out to nearly $6 trillion in the same year. In other words, if one counts the explicit and the implicit together, we’re talking about $7 trillion in a year, worldwide. That’s more than 7 percent of global GDP. 

The U.S. share of that number is $757 billion. And there are very strong arguments to count both the direct and indirect subsidies here, because of the well-confirmed environmental harm we’re causing, for which the check will absolutely come. It’s already coming. The recent Los Angeles wildfires, for instance, may have been the costliest disaster in U.S. history. The economic (to say nothing of the human) cost of not avoiding the worst effects of climate change will be devastating. And let’s not equivocate on who’s leading the charge on the pollution: the Climate Accountability Institute found that the biggest 100 oil and gas producers, including major fossil fuel companies, state-owned producers, state oil agencies, and the like, are responsible for more than half of the global greenhouse emissions since the beginning of the Industrial Revolution.

Even if you’re unwilling to count the indirect subsidies, this idea of fossil fuels as free market exemplars is completely ahistorical. In fact, for the last century, U.S. direct oil and gas subsidies are estimated at around $4.8 billion per year (in 2010 adjusted dollars). That’s roughly a half trillion dollars over the course of the century. Nuclear power was similarly subsidized, especially early on: annualized, the average direct subsidy in nuclear energy, for the second half of the 20th century, was around $3.5 billion per year. Some of the tax credits and incentives that large companies still benefit from were put in place in a very different historical time. It was 1916, for example, when the tax deductions on drilling expenses that major oil companies still enjoy were put into place. This is why the conservative talking points on this are shallow and misleading. Energy policy professionals on both sides of the issue are well aware that virtually all new energy technologies have been subsidized in the beginning, and that we’ve spent a century directly subsidizing oil and gas.

The more generous among you might be tempted to say, fair, but historical subsidies don’t justify continual deficit spending, especially not when the U.S. national debt sits at around $37 trillion dollars. But that’s not what this is about. The Republicans have shown that there aren’t many real deficit hawks, or that they’ve shamed that wing of their party into silence. All of the independent analyses of this “Big Beautiful Bill” indicate that it will raise the deficit by trillions over the course of the next decade. This is about support for coal, oil, and gas. 

But don’t just take my word for it. For the climate watchdog organization Field Notes and her own publication, “Heated,” investigative reporter Emily Atkin recently got ahold of insider information about the workings of the American Exploration & Production Council, or AXPC, an important pro-fossil fuel lobbying group. From internal documents (including the board book from a recent meeting), we know exactly how AXPC plans on engaging with policymakers on the promotion of oil and gas and the elimination of climate protections. And much of what they called priorities has ended up in the “Big Beautiful Bill,” including the halting of taxes on excess methane and mechanisms for faster approval of fossil fuel projects (via the limitation of environmental review). The Heritage Foundation’s Project 2025 made these priorities clear well before the election. 

Apart from the budget bill itself, the Trump administration has also been making non-fiscal moves all over the country that confirm its intentions here. President Trump recently declared an ‘energy emergency’ in the Midcontinent Independent System Operator (MISO), a power grid operator that serves 15 states in the middle of the country as well as Manitoba, in order to delay the closure of an aging coal-fired power plant in Michigan. The engineers on the ground and independent analysts have all confirmed that the emergency isn’t real, that the move is really about providing life support for coal power plants. Over in Texas, lawmakers recently put up for consideration SB 388, which passed in the Senate and is waiting for a House vote. The bill is another attempt at an old idea to structurally favor the natural gas industry, and would require that 50 percent of all new electricity plant capacity come from ‘dispatchable sources,’ which is code for natural gas and coal. Conservatives again mask the support for hydrocarbons in the language of concern for grid reliability in the face of variable sources of power like wind and solar. What it actually does—and again, they know this and this is the point—is distort what has become a highly dynamic and impressive clean energy market.

For example, consider the case of ERCOT, which is highly illustrative. ERCOT stands for Electricity Reliability Council of Texas. It’s a nonprofit, and doesn’t own any generation infrastructure itself. Instead, the job of ERCOT is to manage a highly complex, competitive, and open market that has become a model for how clean energy can be integrated into grids with efficiency and speed. Independent Power Producers (IPPs)—those who operate power generation plants to provide electricity capacity for markets—can sell power to be used on the Texas grid, either in voluntary day-ahead markets or during real time operations. ERCOT is known for providing independent power producers with a structure in which the market rewards producers by paying for what is most needed at that time. In other words, this is a pretty good example of those open and free markets that make Republicans start frothing at the mouth and that a certain famous Chicago school was always talking about. 

Here’s how it plays out: in recent years, it’s been so hot in Texas that people are using air conditioners more during daytime hours, and the energy consumption is staying high after sundown too. In other words, the typical demand spike is now larger and lasts longer. For a while now, solar has been the cheapest way to add power generation capacity, and so the Texas grid has added solar in giant quantities, but this after-dark dynamic has also encouraged the addition of battery storage at a giant scale. For example, Texas added 4 gigawatts of battery storage between 2023 and 2024, and according to Bloomberg Green, it will likely double capacity in 2025. Around 1 gigawatt of solar and batteries come online each month in Texas. You may still be wondering why this matters so much and how it relates to the market manipulation. Well, in the past, the market would reward “dispatchable” sources of power like coal and especially gas at night. When the sun went down and the panels stopped generating, the fossil-fuel producers would swoop in and fill the gap. That dynamic helped to keep the coal and gas plants in business despite those sunny daytime hours, when solar provided much cheaper power and gas plants had trouble competing on price. 

But things are changing. During the heat of last year’s summer (especially August 20), ERCOT set an evening record for net load, which is the difference between the available solar and wind generation capacity and people’s demand. Net load can be thought of as the gap in electricity supply that will need to be covered by more expensive power sources, typically coal and gas. On top of higher costs, historically, the gas plants that meet this need have often had trouble stepping up generation in a hurry, so Texas (and other states) have sometimes resorted to rolling brownouts, blackouts, and to paying big consumers extra to limit their consumption (down-regulation). Gas plants can struggle like this in the winter too, and this will be very familiar to Texans, who remember the 2021 crisis that caused blackouts all over the state. But because of the huge additional battery capacity last summer, the ERCOT grid didn’t get pushed to the edge, didn’t have giant price spikes, and didn’t need to tell customers to stop consuming. Instead, battery storage stepped up to fill the need on that August 20 night, and others, and in fact set a record of its own for storage discharged to the grid. Contrary to concerns about reliability, in this case, clean power performed ideally. The best day we can hope for, for grid operators and the environment, is that a base load is powered by hydroelectric, geothermal, or nuclear plants, that a normal spike in demand is met with a mix of wind and solar, and that all excess electricity demand is filled by batteries, which are recharged again the next day with cheap wind and solar. The U.S. still needs to work on its base load mix, but adding wind, solar, and batteries in such large quantities is moving in the right direction. 

The point isn’t to overanalyze a few hot summer days. The point is that prices for solar panels have decreased by 89 percent in the last decade, while both on and offshore wind have decreased by more than 48 percent. Battery storage, especially lithium-ion batteries, has undergone similar dramatic decreases in prices. The ERCOT grid had become a model for how a competitive and open market might work, and how renewables are winning the day without market distortions, simply because they’re cheaper. But instead of embracing this technology, conservative lawmakers have spent the last couple of years trying to stick their fingers in the eyes of clean energy producers and their own consumers. In 2023, some legislators and lobbyist groups fought hard for a provision that would pay much more to gas plants to stay available during critical demand spikes, and though it didn’t pass ultimately, they’re at it again with SB 388 in Texas, which would force new gas plant capacity at significantly higher costs than the much more competitive solar and battery projects. This one may pass yet. 

The picture is clear: conservatives’ opposition to green energy isn’t because they want free markets, and it isn’t because they’re concerned about grid reliability. Those are smoke screens. What they want is to keep coal and gas plants alive. At higher prices, if need be. When they seek to repeal the clean energy incentives from the IRA, they just want to boost the fossil fuel industry. There are fair and legitimate concerns about the variability of solar and wind. And grid balancing and stability are critical and require attention and investment, but they are not reasons to pivot back to gas and coal. They’re reasons to invest more in the grid, to pursue interconnection and diversity in energy generation technology, and to engage much more seriously in efficiency and management on the demand side as well. 

Fair-minded people might still be left with a question: if clean energy is so competitive, why do we need subsidies at all? The answer is simple. Yes, clean energy, especially solar, offshore wind, and increasingly, batteries, is cheaper than legacy sources. Over time, the market would absolutely take care of the transition. But we don’t have that kind of time! We should keep in mind that it wasn’t that long ago that we transitioned from coal to oil as the world’s largest source of energy. Energy systems are gargantuan and infrastructure for legacy sources; capital expenditure for gas plants, for example, can cost in the tens of billions of dollars. Without clean energy subsidies, the timeline for an energy transition is decades or even centuries. But the scientists tell us unequivocally that we can’t wait that long, that at this moment, the actual energy emergency is the need to rapidly decarbonize.  

 

 

The oil and gas companies have raked in record profits in recent years. For 2022, Fatih Birol of the International Energy Agency put the figure of net income in the oil and gas industry at around $4 trillion. According to the Union of Concerned Scientists, just four companies (Exxon, Chevron, Shell, and BP) combined for $100 billion in profits in 2023, which was considered a dip after the record-setting 2022. They don’t need subsidies anymore. And none of this takes away from the fact that legacy energy sources have enabled astounding levels of innovation and progress. We just have better options now, and the point of the incentives is to speed along the transition to clean energy that we know will happen anyway, but that would happen over a longer period. It’s inevitable, and even conservatives will admit this. But if we’re to have any chance at all of avoiding the worst effects of climate change, it’s simply not optional to speed it along. 

Historically, the US government was happy to provide billions in both direct and indirect subsidies to oil and gas. The idea was to support the young sector and to provide industry with cheap and critical inputs. These are those years for clean energy, and unlike that era, it’s not just cheaper energy for consumers and industrial growth that’s at stake. Now, it’s the planet that’s at stake. This is a no-brainer. And despite the rhetoric on one side, clean energy is highly predictable in terms of cost and very reliable when the grid is well planned and maintained. Other countries have already figured this out: for instance, Germany’s electricity mix is increasingly dominated by renewable and indeed variable sources of power. Last year, wind and solar made up 43 percent of the total electricity power mix. And in the time from 2006-2019, they reduced the average annual duration of power outages per consumer from 20 minutes to just 12 minutes. For comparison, the U.S. has electric generation from wind and solar sitting at around 17 percent and the average outages per year per customer are at around 5.5 hours. So, Germany’s grid is getting better and more reliable as they go green. The keys are diversity, interconnection, grid investment, and planning. The Germans are not doubling down on gas and coal and disincentivizing renewables. 

But there’s hope yet. The “Big Beautiful Bill” hasn’t passed the Senate yet, and the Republicans’ wavering and changing the House text already indicates anxiety with trying to sell the public on the repeal of funding and programming that has helped plenty of Republican voters too. There’s still time to make our voices heard, so pick up the phones!

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