Prospects for Ending US Fossil Fuel Subsidies
The United States provides substantial subsidies to the fossil fuel industry, estimated at $760 billion annually by the International Monetary Fund in 2022, including $3 billion in direct subsidies (tax breaks and credits) and $754 billion in implicit subsidies (unpriced environmental and health costs). These subsidies are rooted in policies like the Intangible Drilling Costs Deduction since 1913. Fossil fuel subsidies face growing scrutiny for clashing with climate goals and economic efficiency. Eliminating them is challenging due to political, economic, and regulatory barriers, compounded by the recent passage of the One Big Beautiful Bill Act (OBBBA) in July 2025. However, opportunities driven by climate urgency, global trends, and public pressure offer hope. Below, we explore the barriers, opportunities, and impacts of the OBBBA on ending fossil fuel subsidies.
Political and Economic Barriers
Industry Influence and Lobbying
The fossil fuel industry’s political clout is a formidable obstacle. In 2023, the sector spent over $100 million on lobbying, according to OpenSecrets. They lobbied to preserve tax provisions like the Intangible Drilling Costs Deduction and Percentage Depletion. Congressional allies in oil-rich states like Texas, Oklahoma, and Louisiana defend these subsidies as critical for economic stability. Past repeal efforts have consistently failed, reflecting the industry’s ability to frame subsidies as essential for jobs and energy security, a narrative that resonates in energy-dependent regions.
Reaping over $200 billion in profits in 2022, the fossil fuel industry does not need subsidies to thrive. These government handouts primarily boost shareholder value, distort energy markets, and delay the transition to cleaner, more sustainable energy future.
Regulatory Capture
Regulatory capture significantly entrenches fossil fuel subsidies. Industry executives and lobbyists often influence or hold positions in agencies like the Department of Energy or Environmental Protection Agency, shaping policies to favor oil, methane, and coal. This capture perpetuates implicit subsidies, such as unpriced pollution costs ($754 billion in 2022, per IMF), by delaying regulations like carbon pricing or stricter emissions standards. It prioritizes corporate profits over public interest, stifling renewable energy transitions and reducing accountability for environmental damage. Capture also undermines reform by embedding industry-friendly regulators who resist subsidy phase-outs, making legislative change politically contentious.
Regional Economic Dependence
States like Louisiana, Wyoming, and North Dakota depend on energy revenue, and lawmakers prioritize local economies, viewing subsidy cuts as a threat to jobs and tax bases. This creates bipartisan resistance to ending corporate welfare.
Energy Price Concerns
Policymakers fear subsidy removal could raise energy costs, impacting consumers and industries. Direct subsidies ($3-20 billion annually) lower production costs, stabilizing gasoline and heating prices. OECD studies suggest price increases of only 1-2%, but public sensitivity to cost hikes, amplified by post-2022 inflation, remains a significant barrier. This concern often overshadows the long-term benefits of redirecting funds to cleaner energy regardless of the truth of the matter.
Policy Inertia and Complexity
Subsidies are embedded in complex tax codes, requiring intricate legislative action to dismantle. Repealing provisions like the domestic manufacturing deduction for oil and gas demands broad congressional approval, often stalled by budget disputes or filibusters. Implicit subsidies, tied to externalities like pollution, face resistance to mechanisms like carbon pricing, particularly from conservative lawmakers and industry allies wary of new taxes.
Opportunities for Reform
Climate Policy Momentum
The US commitment to net-zero emissions by 2050, reinforced by the Inflation Reduction Act (IRA) of 2022, which allocated $369 billion for clean energy, signals a shift toward renewables. International pledges, like the G7’s 2025 deadline to phase out inefficient fossil fuel subsidies, add pressure. These frameworks could justify redirecting subsidies to renewables, which received only $15.6 billion in 2022, supporting a fairer energy market and aligning with global climate goals.
Economic and Job Creation Potential
Eliminating fossil fuel subsidies could free up significant funds. The Joint Committee on Taxation estimates repealing certain tax breaks could save $25.9 billion over a decade. Redirecting these to renewables, which create 3-7 times more jobs per dollar invested than fossil fuels (IRENA, 2023), could appeal to lawmakers focused on economic growth. Declining renewable costs (solar down 80% since 2010) weaken the economic case for fossil fuel subsidies, making reform increasingly viable.
Public and Investor Pressure
Growing climate activism and investor demand for ESG (Environmental, Social, Governance) compliance are shifting the landscape. Public awareness of the $760 billion subsidy cost versus $15.6 billion for renewables could fuel grassroots campaigns. Shareholders are pushing energy firms to diversify, reducing reliance on subsidies. Increased public support could pressure Congress, particularly under climate-focused administrations, to prioritize reform.
Global Trends and Leadership
Countries like Canada and the EU are phasing out fossil fuel subsidies, with the EU targeting 2025. Aligning with these trends could enhance US climate leadership, especially post-COP28’s call for transitioning away from fossil fuels. EU carbon border taxes might incentivize subsidy cuts to avoid trade penalties, bolstering the case for reform.
Impact of the One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA), passed by the Senate (51-50) on July 1, 2025, and the House (218-214) on July 3, 2025, reinforces fossil fuel subsidies, significantly hindering reform prospects. Its impacts include:
- Strengthening Fossil Fuel Subsidies: The OBBBA delays a methane pollution fee, rolls back vehicle emission rules, and streamlines fossil fuel project approvals. Senator James Lankford’s provision exempts many oil and gas drillers from the corporate alternative minimum tax, expanding tax breaks. It also lowers royalty rates for oil and gas (16.6% to 12.5%) and coal (12.5% to 7%) on federal lands, boosting industry profits and entrenching subsidies.
- Undermining Clean Energy: The bill repeals IRA clean energy tax credits (e.g., Sections 45Y and 48E) for solar and wind by 2028, requiring projects to start construction within a year and be completed by 2030. It rescinds $3.6 billion for DOE’s Title 17 loan guarantees and $5 billion for the Energy Infrastructure Reinvestment program, redirecting $1 billion to an “Energy Dominance Financing” program prioritizing fossil fuels. This increases reliance on gas and coal, raising household energy costs by up to $415 annually by 2035 (Princeton’s Jenkins).
- Economic and Environmental Setbacks: The OBBBA increases emissions (up 5% in Q1 2025, per Carbon Monitor), threatens 800,000 clean energy jobs, and raises electricity bills by 10% (Evergreen Action). It undermines $522 billion in announced clean energy investments, delaying the renewable transition.
- Reinforcing Regulatory Capture: The bill’s fossil fuel-friendly provisions reflect industry influence, with groups like the American Petroleum Institute praising its expanded access to federal lands. This deepens capture, as regulators prioritize industry over climate objectives, further delaying subsidy reform.
Likely Timeline and Strategies
Near-Term Outlook (2025-2030)
The OBBBA’s passage makes subsidy elimination before 2030 highly unlikely. Its fossil fuel-friendly provisions, backed by regulatory capture, entrench industry influence. Incremental reforms, like capping tax breaks for marginal projects or tightening federal land leases, may face less resistance, but political gridlock and GOP Senate control (53 seats) limit progress. A strong Democratic majority could push back, but the OBBBA’s legacy complicates efforts.
Mid-Term Prospects (2030-2035)
As renewables reach 50% of US electricity by 2030 (EIA), pressure to eliminate explicit subsidies may grow. Implicit subsidies, tied to externalities, require carbon pricing, which faces resistance due to capture. A fiscal crisis, climate disaster, or stronger international commitments could shift priorities, but the OBBBA’s impacts may delay reform until 2035.
Strategic Approaches
- Targeted Reforms: Focus on low-resistance cuts, like coal liquefaction subsidies ($1 billion), while preserving job-heavy provisions.
- Reallocate Savings: Redirect funds to renewables, job retraining, or consumer relief to mitigate economic concerns.
- Build Public Support: Highlight subsidy disparities to galvanize voters.
- Counter Capture: Advocate for independent oversight of energy agencies to reduce industry influence.
Conclusion
Ending US fossil fuel subsidies faces steep barriers from lobbying, regulatory capture, regional interests, and the OBBBA’s reinforcement of fossil fuel support. Climate urgency, economic logic, and global trends provide reform pathways, but the bill’s impacts delay progress, favoring industry profits over public interest. Incremental reforms by 2030 are possible, with broader cuts by 2035 if political will and public momentum align. Strategic focus on targeted reforms, public engagement, and countering capture is crucial for a cleaner energy future.