The fossil fuel industry receives extensive subsidies that distort markets, exacerbate environmental degradation, and burden taxpayers with unnecessary costs. This support comes in many forms and perpetuates reliance on polluting energy sources at a time when climate change demands urgent action. In the US, direct and indirect fossil fuel subsidies totaled approximately $760 billion in 2025, encompassing tax preferences, unpriced externalities, and other forms of support.[1] This figure dwarfs investments in renewable energy and undermines efforts to transition to cleaner alternatives. By shielding oil, gas, and coal companies from the true costs of their operations, these subsidies not only accelerate global warming but also shift financial responsibilities onto the public, including cleanup of abandoned sites and mitigation of health impacts. It is crucial to dismantle these outdated policies to foster environmental stewardship and economic equity.
The fossil fuel sector is an extractive industry, and they have figured out how to extract cash from the government and the public.
One primary form of subsidy comes through direct tax breaks and government funding that reduce the industry's operational costs. For instance, the US government provides roughly $39 billion annually in explicit subsidies to fossil fuel producers, including deductions for intangible drilling costs and depletion allowances that allow companies to write off resource extraction expenses.[2] The One Big Beautiful Bill increased this amount by $4 billion. These incentives encourage expanded production, even in environmentally sensitive areas such as offshore waters. Offshore oil drilling benefits from additional supports, such as royalty relief programs and federal leasing policies that underprice public lands and waters.[3] Such policies ignore the risks of oil spills and habitat destruction, prioritizing short-term profits over long-term ecological health.
Beyond direct aid, taxpayers often foot the bill for plugging and capping abandoned wells, a process essential to prevent methane leaks, groundwater contamination, and soil erosion. When small oil and gas companies declare bankruptcy or abandon sites, the responsibility falls to federal and state governments. In the US, there are an estimated 3.2 million unplugged wells, with cleanup costs projected at $271 billion.[4] Plugging a single well, including surface reclamation, averages $76,000, but costs can escalate in complex offshore environments.[5] Offshore wells pose unique challenges due to deeper waters and harsher conditions; temporarily abandoned platforms in federal waters alone could require $9.8 billion for proper decommissioning.[6] Despite the Infrastructure Investment and Jobs Act allocating $4.7 billion for orphan well plugging in 2021, this funding covers only a fraction of the need, leaving taxpayers exposed to a potential shortfall of up to $17.7 billion.[7] These expenditures represent a hidden subsidy, as industry bonding requirements are often insufficient to cover actual cleanup costs.
Externalities further amplify the subsidies by imposing unaccounted-for costs on society. Fossil fuels generate massive environmental and health damages that companies do not pay for, including air pollution, climate impacts, and biodiversity loss. In the US, these externalities contribute hundreds of billions to the annual subsidy total, with coal alone imposing $330 billion to $500 billion in economic burdens through health effects like respiratory diseases and premature deaths.[8] Transportation fuels, predominantly fossil-based, account for the largest share of these costs, exacerbating urban smog and contributing to 84% of primary energy production.[9] Public health systems and disaster response efforts bear the brunt, with taxpayers funding treatments for pollution-related illnesses and recovery from extreme weather events amplified by greenhouse gas emissions.
| Subsidy Type | Estimated Annual Cost | Key Environmental Impacts |
|---|---|---|
| Direct US Tax Breaks | $39 billion | Encourages overproduction, leading to higher emissions and habitat disruption |
| Orphan Well Plugging | $10 billion to $15 billion (amortized over sites) | Methane leaks from unplugged wells contribute 20% to 30% of US methane emissions |
| Offshore Drilling Incentives | $5 billion to $10 billion | Risks oil spills, marine ecosystem damage, and coastal erosion |
| Unpriced Externalities | $500 billion to $700 billion | Air pollution causes 200,000 premature deaths annually; accelerates climate change, coastal erosion, and more |
Abandoned site cleanup extends beyond wells to include broader remediation of polluted lands, where oil spills and chemical leaks contaminate soil and water. Taxpayers have shouldered costs exceeding $1 billion for individual sites in some cases, as seen in California, where carbon storage plans by oil firms may shift billions in liabilities to the public.[10] This pattern underscores how the industry externalizes risks, profiting during extraction while leaving communities to deal with toxic legacies.
The myriad subsidies propping up the fossil fuel industry represent a profound injustice to both the environment and taxpayers. By channeling billions into polluting practices, including offshore drilling, well capping, and abandoned site remediation, these policies delay the shift to sustainable energy and perpetuate ecological harm. Policymakers must eliminate these supports. On a level playing field, renewables win as the fastest, most affordable way to produce energy. Only through such decisive action can we safeguard our planet for future generations and ensure that economic progress aligns with environmental integrity.
[1] Fossil Fuel Subsidies: The $760 Billion Lie About 'Free Market' Energy - FracTracker Alliance, March 14, 2025
[2] Fossil Fuel Subsidies Are a Violent Betrayal of the American People - Food & Water Watch, May 7, 2025
[3] Taxpayers Will Pay Billions in New Fossil Fuel Subsidies Thanks to Megabill - Society of Environmental Journalists, September 9, 2025
[4] Filling the Hole: A Federal Solution to Cleaning Up America's Orphaned and Abandoned Oil and Gas Wells - Ohio River Valley Institute, November 8, 2024
[5] Billions of Dollars to Clean Up Abandoned Oil and Gas Wells Will Only Make a Dent - Stateline, October 12, 2023
[6] Fixing Abandoned Offshore Oil Wells Can Create Jobs and Protect the Ocean - Center for American Progress, April 20, 2022
[7] Billions of Dollars to Clean Up Abandoned Oil and Gas Wells Will Only Make a Dent - Stateline, October 12, 2023
[8] Harvard Study: Coal Costs America $330-500 Billion Annually - HuffPost, March 6, 2011
[9] U.S. Energy Facts Explained - Consumption and Production - U.S. Energy Information Administration (EIA)
[10] California Oil Firm's Carbon Storage Plans May Shift Cleanup Costs to Taxpayers - Environmental Health News, December 16, 2024
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