A Decade of U.S. Fossil Fuel Subsidies: The Numbers Washington Rarely Discusses

By the Economic Research Team  ·  Data: IMF Fossil Fuel Subsidies Dataset  ·  Annual, 2015–2024

The Scale of the Problem

In 2024, the United States provided an estimated $1,118 billion in fossil fuel subsidies — equivalent to 3.82% of GDP. That figure combines both explicit subsidies (direct budget transfers, tax preferences for oil and gas producers, below-cost access to federal lands) and implicit subsidies (the failure to price the externalities of fossil fuel combustion: carbon emissions, local air pollution, road congestion, and accidents).

The explicit component — $18 billion — is what most policy debates focus on. It is the number that appears in budget documents, that environmental groups campaign to eliminate, and that fossil fuel industry advocates defend as essential industrial support. But it represents only a fraction of the true subsidy: $1,100 billion in implicit subsidies dwarfs explicit support, reflecting the enormous social costs that American consumers, healthcare systems and the climate absorb without compensation from the industries that generate them.

The peak year in the decade was 2024, when total subsidies reached $1,118 billion — a figure that reflects both energy market conditions and the structural gap between U.S. fuel taxation and efficient pricing levels.

Explicit vs. Implicit: A Tale of Two Subsidies

The distinction between explicit and implicit subsidies is not merely accounting: it reflects fundamentally different policy choices and different political economies of reform.

Explicit subsidies are identifiable line items. The U.S. tax code contains several provisions that function as production subsidies for fossil fuel industries: the intangible drilling cost deduction (allowing oil and gas producers to immediately expense the bulk of well-drilling costs), the percentage depletion allowance (allowing independent oil producers to deduct a percentage of gross income from oil and gas wells regardless of actual costs), and various royalty relief programmes on federal lands. These provisions date in some cases to the early twentieth century and have survived repeated legislative efforts at elimination. The Inflation Reduction Act of 2022 made no changes to these core provisions despite its extensive climate investments.

Implicit subsidies follow the IMF's Pareto-efficient pricing framework: they represent the difference between the price consumers and producers actually pay for fossil fuels and what they would pay if fuels were taxed to reflect their full social cost. The carbon component (POTCC) reflects the social cost of carbon embedded in each unit of fossil fuel consumption. The local air pollution component (POTLAP) reflects the health and productivity costs of particulate matter, nitrogen oxides, and other pollutants from combustion. Congestion and accident externalities from vehicle fuel consumption add further to the implicit subsidy calculation.

In a country where federal gasoline taxes have not been raised since 1993 — and where the real value of that tax has been eroded by decades of inflation — implicit fossil fuel subsidies are embedded in the fundamental structure of American energy prices.

The Fuel Breakdown

Oil dominates U.S. fossil fuel subsidies in absolute dollar terms, reflecting both the size of the petroleum sector and the extensive road transport externalities associated with gasoline and diesel consumption. Natural gas subsidies — both explicit production incentives and implicit externalities from gas combustion in power generation, heating and industrial use — represent the second largest component and have grown in relative importance as the U.S. shale revolution expanded gas consumption.

Coal subsidies, while smaller in absolute terms than oil or gas, carry particular policy significance: the coal sector has declined in market share but retains disproportionate political influence, and the social cost of coal combustion (local air pollution, mercury, particulate matter) remains high per unit of energy produced. The trajectory of coal subsidies reflects the structural decline of the sector — lower output means lower absolute subsidy — but not an explicit policy decision to price coal appropriately.

U.S. Fossil Fuel Subsidies — Annual Data (2015–2024)

SUB_TYPE: IMEX = total (explicit + implicit); EX = explicit; IM = implicit. USD = constant 2021 billion USD. % of GDP = POGDP_PT transformation.

Fuel-Type Breakdown (2015–2024)

Reform Prospects and Political Economy

The United States has made commitments under the G20 fossil fuel subsidy reform process to phase out "inefficient" fossil fuel subsidies — a pledge first made in 2009 and reiterated at subsequent summits. Progress has been limited. The political economy is straightforward: fossil fuel producing states have disproportionate Senate representation, the industry employs significant lobbying capacity, and explicit subsidy provisions are embedded in a tax code that is difficult to amend on a targeted basis.

Implicit subsidies are politically even harder to address. Raising fuel taxes to reflect social costs — the most direct route to eliminating implicit subsidies — is perceived as regressive (it falls more heavily as a share of income on lower-income households), which has blunted political support even among policymakers who accept the externality pricing logic. The failure to index the federal gasoline tax to inflation since 1993 has itself been a slow-motion implicit subsidy expansion.

The IMF's analysis suggests that correcting U.S. fossil fuel pricing to efficient levels would generate substantial fiscal and health co-benefits — reduced healthcare costs from cleaner air, revenue from carbon pricing — but would require political will that has not materialised in the decade this data covers.

Data source: IMF Fossil Fuel Subsidies (FFS) Dataset. COUNTRY=USA. SUB_TYPE: IMEX (total), EX (explicit), IM (implicit). TYPE_OF_TRANSFORMATION: USQ2021 (constant 2021 USD), POGDP_PT (% of GDP). Annual frequency. FFS codes: ALL, OIL, NGA, COA, ECY.

Author: Economic Research Team  |  Publisher: MarketsFN