The U.S. spends roughly $30 to $35 billion per year on direct fossil fuel subsidies through tax breaks, royalty discounts, and other financial support for oil, gas, and coal companies. That figure covers only the money that shows up in federal and state budgets. When you factor in the hidden costs that society pays, like health damage from air pollution and climate change, the International Monetary Fund puts the true number at $757 billion for 2022.
The gap between those two numbers reflects a fundamental disagreement about what counts as a “subsidy,” and it’s the reason you’ll see wildly different figures depending on who’s doing the math.
Direct Subsidies: The Budget Numbers
Direct federal subsidies to the fossil fuel industry total approximately $14.7 billion per year, with an additional $5.8 billion flowing from state governments, bringing the combined direct total to around $20.5 billion annually. These are tax breaks, below-market access to public resources, and direct financial support that reduce the cost of producing oil, gas, and coal.
That baseline has recently grown. With the passage of the One Big Beautiful Bill Act in 2025, an analysis found that roughly $4 billion per year in new fossil fuel subsidies were added over the next decade, including more than $1.4 billion annually in expanded tax credits for carbon capture projects run by oil and gas companies. The preexisting subsidy level of $30.8 billion per year (a figure that includes some broader financial interventions beyond the narrowest definitions) now stands at least $34.8 billion a year in domestic fossil fuel support.
Where the Money Goes
Most direct fossil fuel subsidies aren’t a check written to an oil company. They’re tax provisions that let companies pay less than they otherwise would. One of the oldest and largest is the deduction for intangible drilling costs, which lets oil and gas producers write off expenses like labor, chemicals, and ground preparation in the year they’re incurred rather than spreading them out over time. Repealing that single provision would generate an estimated $13 billion in additional tax revenue over ten years, according to the Joint Committee on Taxation.
Other major provisions include percentage depletion allowances (which let smaller producers deduct a fixed percentage of revenue regardless of actual costs), tax credits for payments made to foreign governments, and below-market royalty rates for drilling on federal land. The Inflation Reduction Act of 2022 actually increased royalty rates for oil and gas leases on federal and offshore lands, but they remain lower than what private landowners typically charge.
The IMF’s Much Larger Number
The IMF calculated total U.S. fossil fuel subsidies at $757 billion in 2022, making the country the world’s second-largest fossil fuel subsidizer after China ($2.2 trillion). That figure breaks down into two categories. Explicit subsidies, the direct budget costs, accounted for just $3 billion in the IMF’s framework (which uses a narrower definition than most U.S. estimates). The remaining $754 billion came from implicit subsidies.
Implicit subsidies represent costs that fossil fuels impose on society but that aren’t reflected in the price you pay at the pump or on your utility bill. The IMF calculates the gap between what fossil fuels actually cost (including supply, environmental damage, and forgone tax revenue) and what consumers pay. The difference is effectively a subsidy, because someone else absorbs the cost. That “someone else” is the public, through higher healthcare spending, climate damage, and lost tax revenue.
The largest chunk of implicit subsidies comes from air pollution. Burning fossil fuels releases particulate matter that causes heart disease, lung cancer, and asthma. These health costs are real and measurable, but they don’t appear on anyone’s energy bill. Global warming damage is the other major component. The EPA estimated the social cost of emitting one metric ton of carbon dioxide at $190, meaning every ton released creates that much in future economic harm through extreme weather, crop losses, rising seas, and other consequences.
Why Estimates Vary So Widely
You can find credible figures ranging from $3 billion to $757 billion depending on three choices the analyst makes: what counts as a subsidy, whether to include state-level programs, and whether to price in environmental and health damage.
The U.S. Energy Information Administration, for instance, tracks only direct federal financial interventions and explicitly excludes state and local programs from its reporting, even though it acknowledges those are “significant in several cases.” The IMF includes implicit costs but uses a narrower definition of explicit subsidies than most domestic analyses. The often-cited $649 billion figure from the Environmental and Energy Studies Institute falls in the middle, combining direct subsidies with estimated externality costs but using different methods than the IMF.
Eliminating direct fossil fuel subsidies would return an estimated $121 billion annually in increased federal revenue, a figure that accounts for the ripple effects of removing tax preferences across the industry. That’s considerably more than the face value of the subsidies themselves, because some provisions interact with each other in ways that compound the revenue loss.
How Fossil Fuel Subsidies Compare to Clean Energy
For decades, fossil fuels received far more federal support than renewables. That gap narrowed significantly with the Inflation Reduction Act, which created hundreds of billions in clean energy tax credits over ten years. But the 2025 spending bill partially reversed that shift by adding $40 billion in new fossil fuel subsidies over the next decade while separately scaling back some clean energy provisions.
The result is that fossil fuels continue to receive substantial public financial support even as the industry posts record profits. The roughly $35 billion in annual direct domestic subsidies flows to an industry that, unlike wind and solar in their early years, has been commercially mature for over a century. Critics argue this tilts the playing field against cleaner alternatives. Supporters counter that the tax provisions keep energy affordable and support domestic production that reduces reliance on foreign oil.