Why the world’s oldest energy industry still receives more support than its replacement
This article began with a comment beneath a post I wrote about IKEA’s renewable energy investments.
The post highlighted how IKEA has installed more than a million solar panels, owns dozens of wind farms and solar parks, and now matches most of its electricity consumption with renewable energy.
Among the responses was a familiar argument:
“Companies are investing because of the subsidies. Change my mind.”
— elKo rizo 🌻 #TeamLowCarbon
The comment was not unusual. It reflected an argument that appears whenever renewable energy, batteries, electric vehicles, or other clean technologies are discussed.
The assumption is simple: clean energy investments exist primarily because governments support them, and without subsidies the business case would disappear. It is often presented as self-evident that renewables depend on government assistance, while fossil fuels represent the natural outcome of free-market competition.
The Fossil Fuel Welfare State examines that assumption.
This article builds on an earlier piece, Electric Cars Are Better. Subsidies Just Make It Obvious, which explored a simple proposition: subsidies did not create the advantages of electric vehicles. They merely accelerated the adoption of a technology that was already proving superior in efficiency, operating costs, performance, and user experience.
The same principle applies more broadly across the energy system.
Throughout history, governments have supported canals, railways, roads, aviation, telecommunications, and the internet. Energy is no exception. The more interesting question is not whether support exists, but where it flows, how it is structured, and what outcomes it produces.
That question matters because the scale of support involved is often far larger than public debate suggests. According to the International Monetary Fund, global fossil fuel subsidies exceeded $7 trillion in 2022 when both direct support and externalized environmental and health costs are included. While estimates vary depending on methodology, the broader conclusion is remarkably consistent: fossil fuels continue to benefit from substantial forms of public support that are frequently overlooked in discussions about energy markets.
The term “fossil fuel welfare state” refers to the vast network of direct subsidies, tax concessions, public financing, infrastructure support, regulatory protections, and externalized costs that continue to sustain fossil fuel production and consumption.
This article examines the scale of support still flowing to fossil fuels through direct subsidies, tax concessions, infrastructure spending, regulatory frameworks, strategic protections, market design, and the externalization of environmental and health costs. It draws on a range of sources, including IMF analyses of both direct and indirect subsidies, while clearly distinguishing between different methodologies and definitions of support.
One paradox sits at the centre of the discussion:
Fossil fuels are often described as the free-market energy source. Yet they may also be the most subsidized mature industry in human history.
The central argument is straightforward:
The energy transition is not a fight between subsidized renewables and free-market fossil fuels. It is a fight between an old system still on life support and a new one that no longer needs permission to win.
Before examining the numbers, it is worth stepping back and looking at the broader picture.
The debate around energy subsidies is often framed as a contest between subsidized renewables and free-market fossil fuels. Yet when both direct support and broader forms of economic assistance are considered, the reality looks very different.
The fossil fuel industry is not merely an energy system. It is a vast network of subsidies, tax concessions, public infrastructure, regulatory protections, and externalized costs that has evolved over more than a century.
This is what I mean by the term “The Fossil Fuel Welfare State.”
Defining Subsidies
This article examines both direct subsidies and broader economic support mechanisms.
Where possible, primary sources such as the IMF, IEA, OECD, government budget documents, and energy market data are used.
Subsidies are discussed under two frameworks:
- Explicit subsidies, including direct payments, tax concessions, price controls, and other forms of direct government support.
- Implicit subsidies, including unpriced environmental, health, and climate damages as defined by the IMF.
The IMF includes implicit subsidies in its estimates because the absence of a price on environmental damages functions as an effective subsidy to production, even without a direct government transfer.
Estimates vary depending on methodology. Rather than relying on a single definition, this article explores multiple approaches and clearly identifies which framework is being used in each case.
Estimating Relative Support
With those definitions in place, we can now compare support levels relative to actual energy output.
Most discussions focus on total subsidy amounts. This article uses a different approach.
Rather than comparing raw totals, it compares support relative to the amount of electricity generated.
The comparison uses a simple ratio:
Subsidy support ÷ share of global electricity generation
Because the calculation uses the percentage figure itself (for example, 60 rather than 0.60), the result is expressed as dollars per percentage point of global electricity generation.
This provides a rough estimate of how much support each energy source receives relative to its contribution to global electricity generation.
Summary Results
Using explicit subsidy estimates:
- Fossil fuels receive approximately 1.6 times more support relative to their share of electricity generation than renewables.
- A reasonable sensitivity range is 1.3× to 2.0×, depending on the renewable subsidy estimate used.
Using the IMF’s broader framework, which includes environmental and health costs:
- Fossil fuels receive approximately 15 times more support relative to their share of electricity generation than renewables.
The detailed calculations are provided below for transparency.
Method 1: Explicit Subsidies Only
Using commonly cited estimates:
- Fossil fuel subsidies: $730 billion
- Renewable energy subsidies: $250 billion (midpoint of $200–300 billion range)
- Fossil fuels: 60% of global electricity generation
- Renewables: 33% of global electricity generation
For simplicity, this comparison focuses on fossil fuels and renewables because they are the primary subjects of the subsidy debate. The remaining ~7% of global electricity generation comes largely from nuclear power, along with a small contribution from other minor sources.
Fossil fuels
$730 billion ÷ 60
= $12.17 billion per percentage point of global electricity generation
Renewables
$250 billion ÷ 33
= $7.58 billion per percentage point of global electricity generation
Relative support
$12.17 billion ÷ $7.58 billion
= 1.61
Result: Fossil fuels receive approximately 1.6 times more support relative to their share of electricity generation than renewables under the explicit subsidy framework.
The first comparison uses only explicit subsidies and direct government support.
This is the most conservative approach and the one least open to debate because it focuses solely on direct financial assistance rather than broader economic impacts.
Even under this narrower framework, fossil fuels receive more support relative to their share of global electricity generation than renewables.
Depending on the renewable subsidy estimate used, the ratio ranges from approximately 1.3× to 2.0×, with a midpoint estimate of around 1.6×.
Sensitivity Range
Using the renewable subsidy range of $200–300 billion:
Low renewable estimate ($200 billion)
$200 billion ÷ 33
= $6.06 billion
$12.17 billion ÷ $6.06 billion
= 2.01
High renewable estimate ($300 billion)
$300 billion ÷ 33
= $9.09 billion
$12.17 billion ÷ $9.09 billion
= 1.34
This gives a reasonable range of:
1.3× to 2.0×
with approximately 1.6× as the midpoint estimate.
Method 2: IMF Broader Framework
The International Monetary Fund estimates total fossil fuel support at approximately:
$7 trillion per year
This includes:
- Direct subsidies
- Air pollution impacts
- Health costs
- Climate damages
- Underpriced environmental externalities
- Foregone fuel taxation
Using the same methodology:
Fossil fuels
$7,000 billion ÷ 60
= $116.7 billion per percentage point of generation
Renewables
$250 billion ÷ 33
= $7.58 billion per percentage point of generation
Relative support
$116.7 billion ÷ $7.58 billion
= 15.4
Result: Fossil fuels receive approximately 15 times more support relative to their share of electricity generation than renewables under the IMF framework.
The IMF uses a broader definition of support than direct subsidies alone.
Its methodology includes environmental damages, health impacts from air pollution, climate costs, and other externalities that are not fully reflected in market prices. The IMF argues that when these costs are not paid by producers or consumers, they function as an indirect subsidy to fossil fuel use.
This approach is more controversial than the explicit subsidy framework, but it highlights the scale of costs shifted onto society rather than reflected in energy prices.
Under this methodology, fossil fuels receive roughly fifteen times more support relative to their share of electricity generation than renewables.
Important Caveat
The explicit subsidy comparison is the cleaner comparison because it measures direct government support.
The IMF estimate is broader and includes societal costs that are not reflected in market prices.
In addition, fossil fuel subsidy estimates cover multiple sectors including electricity, transport, heating, and industry, whereas renewable support is primarily directed toward electricity generation.
The exact ratio therefore depends on methodology.
The overall direction does not.
Under both approaches, fossil fuels receive more support relative to their share of electricity generation than renewables.
What This Article Is Not
This article is not an argument that all fossil fuel subsidies should disappear overnight.
It is not an argument that renewable energy receives no public support.
Nor is it an argument that energy transitions occur without government involvement.
This observation is not unique to fossil fuels. Many large-scale energy systems, including hydroelectric projects, transmission networks, and nuclear power programs, have historically relied on significant government involvement, public financing, or state ownership. Energy has rarely been a purely free-market sector.
It does not assume that every subsidy is harmful or that every intervention is justified.
Instead, it examines whether public debates accurately represent the scale, distribution, and purpose of support received by competing energy technologies.
Why It Matters
The public debate often focuses on renewable subsidies while overlooking the broader network of support mechanisms that continue to underpin fossil fuels, including direct subsidies, tax concessions, public financing, infrastructure support, and externalized costs.
The IKEA example illustrates why this discussion matters.
A company does not commit billions of euros over decades simply because a subsidy exists. Businesses invest because they expect a return.
They invest because they see lower operating costs, reduced exposure to volatile fuel markets, improved energy security, and long-term strategic advantages.
Subsidies can affect timing and risk. But they do not explain why companies as diverse as IKEA, Amazon, Google, Microsoft, Walmart, and thousands of manufacturers, retailers, and industrial firms around the world continue to invest heavily in renewable energy.
The assumption that renewables exist only because of subsidies often ignores a more important question:
Why are so many organizations voluntarily investing their own money into these technologies even in markets where support mechanisms are declining?
Subsidies influence investment decisions, energy prices, industrial competitiveness, and public policy.
Understanding where public support flows helps explain why some technologies scale rapidly while others struggle to compete. It also helps reveal who ultimately bears the costs and who receives the benefits.
The answers affect far more than energy markets. They shape economic development, national security, public health, climate policy, and the pace of technological change.
Through data analysis, historical context, and case studies from around the world, this article seeks to move the subsidy debate beyond slogans and assumptions toward a more evidence-based understanding of how energy markets actually function.
The answer may tell us as much about politics, institutions, and economic incentives as it does about energy itself.
The evidence presented here points toward a conclusion that is difficult to avoid: the dominant narrative has the relationship backwards.
The energy transition is not a fight between subsidized renewables and free-market fossil fuels. It is a fight between an old system still on life support and a new one that no longer needs permission to win.
If that conclusion is broadly correct, then the policy question is not whether governments should intervene in energy markets. They already do.
The real question is whether public support should continue preserving incumbent systems indefinitely, or whether it should increasingly focus on technologies that deliver lower costs, greater energy security, and fewer social harms over time.
The paradox becomes even more striking when profitability is considered. Fossil fuels are not an infant industry. They are among the most mature and commercially successful industries ever created. Yet despite more than a century of market dominance, vast accumulated infrastructure, and trillions of dollars in historical profits, substantial public support remains embedded throughout the system.
Fossil fuels receive more public support than renewables relative to their electricity generation. Why does the world’s oldest energy industry still require such extensive public support after more than a century of market dominance?
Until public debates reflect the actual distribution of support—rather than the myth of free-market fossil fuels—we will continue to have the wrong conversation about the energy transition.