What’s the point of subsidizing fossil fuels?

The industry fights to keep going and not to have to bear the cost itself of the environmental harm which it causes.


The amount of direct and indirect funds spent by our government subsidizing the fossil fuel industry is staggering, and few of our citizens focus on it.   “[T]he inefficiency of fossil fuel subsidies is illustrated best by the United States’ own expenditure: the $649 billion the U.S. spent on these subsidies in 2015 is more than the country’s defense budget and 10 times the federal spending for education. When read in conjunction with a recent study showing that up to 80% of the United States could in principle be powered by renewables, the amount spent on fossil fuel subsidies seems even more indefensible.”

“The IMF’s study identifies more than just direct subsidies to the fossil fuel industries but also the costs on society, public health and climate change that are caused by the coal, petroleum and natural gas.” 

With all of the attention paid to climate change, and with science pointing to fossil fuels as a major culprit in this world-wide danger, why are we tolerating fossil fuels, much less subsidizing them?  The answer, of course, is political, and the power of that industry in the structure of our society.

In order to operate, the fossil fuel industry continues to invest heavily in itself.  Yes, it makes huge profits, but if the subsidies were cut off and the costs of its own making were imposed upon it by law, those profits would end and – indeed – the industry would probably collapse.  This would have an enormous impact on states like Texas and Oklahoma.  Not only would the industry be impacted, but the people living there who depend on the industry for jobs, education, food and health would be likewise impacted.

In other words, shutting down fossil fuels and switching over to renewables totally would have a cost.  But even if those costs were borne by the society as a whole and not just the industry and the areas dependent on it, we would be well ahead of the game to end the industry for the most part.  Logic, in other words, says to end the industry.  Unfortunately, logic cannot prevail, because the industry will use its power to fight.

There is a strategy for bringing the industry to a close, and that is spreading the losses across the society.  While taking into account the industry’s huge profits of the past ten years, we should also take into account the investments which the industry has made to keep itself functional.  Similarly, and more importantly, we should take into account the investments of people in places like Texas and Oklahoma, and not permit the ending of fossil fuels to throw them into bankruptcy.  In other words, we should weigh the positive and the negative and make sure that the negative costs do not fall on a portion of our country but on the country as a whole.  For example, we should make certain that investments in new industries will be made in Texas and Oklahoma so that the people there will not suffer.

The problem with the fossil fuel industries points to one of the greatest failings of the capitalist system, and that is how to treat an industry which has been enormously successful and upon which the country has depended for years if suddenly that industry becomes a danger to the rest of the society.  This is particularly problematic when the industry (and the region in the country which depends on it) suddenly becomes a failure in terms of its impact on the society.  This is because, under capitalism, risk-taking can be both positive and negative.  The benefits and detriments fall upon the risk taker.  Because these benefits and detriments are not shared, the risk-taker fights to keep the benefits for itself and likewise fights to shift the detriments to everyone else.

In the case of fossil fuels, the detriment is the harm to the environment, and the industry fights to stay in business even if it would be better overall for it to stop and have some other industry take over.

When we talk about capitalism, we assume that if an industry becomes detrimental, it will go out of business.  In the case of fossil fuels, the “detriment” isn’t monetary losses to the industry, but environmental loss to the society.  The industry fights to keep going and not to have to bear the cost itself of the environmental harm which it causes.  We’ve seen this before: the tobacco industry was profitable, but it caused medical harm to its customers.  It fought to stay in business and fought to avoid being charged with the medical costs.

Let’s pretend that our country was a corporation that had two businesses.  One of these made money but with little risk.  The other made more money when successful, but in bad years made little money.  Overall, it made a bit more money than the “safe” business, but its business was a roller coaster.  What should be done with the profits of the two businesses?  Why, they should be shared equally.  The overall corporate strategy is to have one steady business and one with the hope of greater profit but also the likelihood of loss.  The steady business provides a floor for operation, and the risky business provides a way of making extra profit.  But the workers in both work just as hard, and management in both are competent.

The fossil fuel industry was a gamble when it started out (compared, say, to textiles or farming).  If the entire country were invested in all three industries, the society would benefit from the ordinary businesses and also from the riskier business.  The profits would not go to the managers of each business separately but to all.  And if we ran into a problem such as the one we have with fossil fuels, we could shut it down and depend for the moment on the less risky businesses.  We would take care of those who work in the fossil fuel business so that they would not be hurt, and we would protect the environment (which belongs to us all).

I would compare this situation with the one we might face with a virus like COVID-19.  The disease might have enormous impact in one region (say, Florida) and much less in another (say, Iowa).  Should the people in Florida starve because no one could work while those in Iowa led normal lives?  I should hope not.  The impact of a new disease is unpredictable, and we should all share the risks equally.  And if Iowa is struck by multiple tornadoes but North Dakota is not, the damage should be shared.  (And North Dakota should share the benefits of big gold discoveries.)

Much of what happens in life is a matter of luck.  The benefits of good luck and the detriments of bad luck should be shared.  If that were the way our society operated, we would have little to fight about among ourselves and much better opportunities for happiness. 


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