Following the Money—And the Many Myths—Around Fossil Fuel Subsidies
Time and again, I’ve watched the debate over U.S. “fossil fuel subsidies” drift further and further away from the underlying realities of how our energy and tax systems actually work. Depending on who you ask, the federal government is propping up oil, gas, and coal with hundreds of billions in support, shielding them from competition, or quietly distorting markets in their favor. Each of these claims contains a sliver of truth—but none of them, taken alone, explains why these enormous figures keep circulating or why the conversation feels so detached from what the government actually spends.
In my latest issue brief for the National Center for Energy Analytics, I step back and look closely at the numbers and, more importantly, the methods behind them. What emerges is a far clearer—and far more revealing—picture: the U.S. does not provide large direct subsidies to fossil fuels, and the widely publicized claims suggesting otherwise are built almost entirely on theoretical constructs rather than real fiscal flows.
The problem begins with how certain organizations define the term “subsidy.” Rather than limiting the concept to explicit government outlays or targeted tax provisions, many groups—most notably the IMF and international climate advocacy networks—expand it to include what they call implicit subsidies. These are not actual payments. They are estimates of hypothetical environmental or health “costs” that governments have not charged energy producers for but could in theory. That accounting choice allows researchers to convert everyday externalities into billions of dollars in supposed subsidies. It may serve a political narrative, but it does not resemble how budget analysts or policymakers measure federal financial support.
When we look strictly at explicit subsidies—direct grants, loans, tax expenditures, and R&D funding—the picture changes dramatically. Federal support for fossil fuel production is small, stable, and long-standing, primarily consisting of routine cost-recovery provisions that exist across many industries with large upfront capital requirements. Meanwhile, renewable energy has enjoyed—and continues to enjoy—an expansive and growing suite of subsidies, supercharged by the Inflation Reduction Act and only partially dialed back by the 2025 OBBBA legislation. Even with those reforms, many generous tax credits for wind and solar will remain in place for years.
So why, if explicit fossil fuel subsidies are relatively limited, has this issue resurfaced so forcefully? Because the OBBBA’s phase-down of renewable subsidies has reignited the long-running push from climate advocacy groups to “level the playing field,” a phrase that often serves as a prelude to restricting investment in traditional energy. These groups rely heavily on inflated subsidy figures to argue that fossil fuels enjoy artificial support and therefore deserve aggressive regulatory countermeasures. That argument has become central to the messaging from the IEA, the IMF, and even the United Nations, where leaders routinely cite these exaggerated claims to call for eliminating fossil fuel subsidies altogether.
The irony is hard to ignore. The debate is no longer about what the U.S. government actually spends. It has become a debate about what modelers believe the government should be charging energy producers—and then labeling the absence of those charges as subsidies. This inversion of meaning not only clouds the issue but also misleads the public and policymakers about the economic role of fossil fuels in the U.S. economy.
And the stakes are far from academic. When policymakers operate under the assumption that fossil fuels are “lavishly subsidized,” they risk designing policies based on misunderstanding rather than fact—policies that could undermine the reliability, affordability, and security of the U.S. energy system. Our economy still runs overwhelmingly on oil, natural gas, and coal. Pretending that these resources persist only because of fictional subsidies does nothing to address our ongoing need for abundant, dependable energy.
The bottom line is simple: the United States does not meaningfully subsidize fossil fuels in the way critics claim. The enormous figures often cited are not fiscal realities; they are theoretical estimates packaged as data. If we want an honest conversation about energy policy—and about what it will take to ensure a reliable, affordable energy system—we need to begin by clearing away the confusion surrounding fossil fuel subsidies and returning to what the numbers actually say.