The myth of the ‘free market’ in fossil fuels – The American Bazaar

Analysis of U.S. Energy Subsidies and Alignment with Sustainable Development Goals

Executive Summary

This report examines the long-standing practice of government subsidies for the U.S. fossil fuel industry. It finds that these subsidies, totaling approximately $31 billion annually, create significant market distortions that are in direct conflict with the United Nations Sustainable Development Goals (SDGs). Specifically, these policies undermine progress on SDG 7 (Affordable and Clean Energy), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action). The report concludes that phasing out these subsidies and reallocating public funds toward sustainable alternatives would accelerate the achievement of the 2030 Agenda, foster innovation, and create a more equitable and efficient energy market.

Historical Context and Financial Scale of Market Distortions

A Century of Preferential Treatment

Contrary to the principle of a free market, the U.S. energy sector has been subject to significant government intervention for over a century. Preferential tax provisions for the oil and gas industry were introduced as early as 1913 to encourage exploration. Despite the industry’s subsequent maturation into a highly profitable global enterprise, these financial supports have remained in place, creating a structural imbalance that favors incumbents over emerging clean technologies.

Current Scope of Fossil Fuel Subsidies

An analysis by Oil Change International (2025), utilizing World Trade Organization definitions, estimates that direct and indirect subsidies to the U.S. fossil fuel industry have reached approximately $31 billion per year. An additional $4 billion per year is projected from the 2025 federal tax package. These subsidies are delivered through several key mechanisms:

• Tax deductions allowing credits for foreign royalties and taxes against U.S. obligations.
• Below-market royalty rates for resource extraction on public lands.
• Expanded “45Q” tax credits for carbon capture, often used for enhanced oil recovery.
• Direct federal appropriations and program funding.

Conflict with Sustainable Development Goals (SDGs)

Undermining SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action)

The continued financial support for fossil fuels directly impedes progress toward ensuring access to affordable, reliable, sustainable, and modern energy for all (SDG 7). By artificially lowering the cost of carbon-intensive energy sources, these subsidies disincentivize investment in renewable technologies and hinder the transition necessary to combat climate change and its impacts (SDG 13). The policy effectively channels public funds to perpetuate a legacy energy system at the expense of a sustainable future.

Violation of SDG 12 (Responsible Consumption and Production)

The U.S. policy is in direct contravention of SDG Target 12.c, which calls on all nations to “rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption by removing market distortions.” The current subsidy regime encourages continued extraction and consumption of fossil fuels, failing to account for their significant environmental and social externalities, thereby promoting unsustainable production patterns.

Opportunity Costs for SDG 8, 9, and 10

The $31 billion annual expenditure represents a significant opportunity cost for other national priorities aligned with the SDGs. Redirecting these funds could advance multiple goals simultaneously:

1. SDG 9 (Industry, Innovation, and Infrastructure): Funds could be used for grid modernization, resilience upgrades, and innovation grants for clean-tech manufacturing, building a sustainable industrial base.
2. SDG 8 (Decent Work and Economic Growth): Investment in distributed renewable energy, such as rooftop solar, would create local jobs and stimulate local economies as household energy savings are recirculated.
3. SDG 10 (Reduced Inequalities): Reallocating funds from corporate subsidies to household-level clean energy initiatives could significantly lower energy costs for families, addressing energy poverty. For example, a typical Maryland household could save $1,400-$1,600 annually, a 60-70% reduction in electricity costs.

Policy Recommendations for Alignment with the 2030 Agenda

Phase Out Inefficient Subsidies

To create a fair and functional energy market, the primary recommendation is the systematic elimination of subsidies for the mature and profitable fossil fuel industry. This action would level the playing field, allowing renewable and fossil fuel technologies to compete on their true costs and performance. This aligns with classical economic principles and the specific target of SDG 12.c.

Implement Market-Based Instruments

Removing subsidies should be paired with the implementation of market-based mechanisms that internalize the environmental costs of energy production. Such instruments would ensure that price signals accurately reflect the true cost of energy, guiding private investment toward more efficient and sustainable technologies in line with climate objectives under SDG 13.

Reallocate Public Funds for Sustainable Development

Public funds currently directed to fossil fuels should be strategically reallocated to accelerate the clean energy transition. Priority areas for investment include:

• Supporting the deployment of distributed renewable energy to advance SDG 7.
• Investing in research and development for next-generation clean technologies to foster innovation under SDG 9.
• Providing performance-based, temporary incentives to scale emerging technologies, ensuring they become competitive without creating long-term market dependence.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article addresses several Sustainable Development Goals (SDGs) by focusing on the economic and environmental implications of fossil fuel subsidies and the potential benefits of transitioning to renewable energy.

• SDG 7: Affordable and Clean Energy: The core of the article discusses the energy sector, contrasting the subsidized fossil fuel industry with emerging clean energy technologies like solar. It argues that redirecting subsidies could lower household energy costs and modernize the grid, directly aligning with the goal of ensuring access to affordable, reliable, sustainable, and modern energy.
• SDG 12: Responsible Consumption and Production: The article’s central argument is the need to end “inefficient fossil-fuel subsidies.” This directly addresses the goal of promoting sustainable consumption and production patterns by removing market distortions that encourage wasteful consumption and support an outdated energy model.
• SDG 13: Climate Action: By discussing greenhouse-gas emissions, the role of the shale revolution in reducing carbon-dioxide emissions, and carbon-capture technologies, the article connects directly to the need for urgent action to combat climate change. Removing subsidies from fossil fuels is presented as a key policy action to align economic incentives with climate goals.
• SDG 9: Industry, Innovation, and Infrastructure: The article advocates for policies that promote innovation and efficiency. It suggests that ending subsidies would allow capital to flow to more efficient technologies, “modernize the grid,” and support “clean-tech manufacturing.” This relates to the goal of building resilient infrastructure and fostering sustainable industrialization.

2. What specific targets under those SDGs can be identified based on the article’s content?

The article’s content points to several specific SDG targets:

1. Target 12.c: Rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption by removing market distortions, in accordance with national circumstances, including by restructuring taxation and phasing out those harmful subsidies, where they exist, to reflect their environmental impacts.
   • Explanation: This is the most explicitly addressed target. The entire article is a critique of U.S. fossil-fuel subsidies, which it quantifies at “$31 billion annually.” It calls for “Removing fossil-fuel subsidies” to end “market distortions” and allow the market to “function as intended.”
2. Target 7.2: By 2030, increase substantially the share of renewable energy in the global energy mix.
   • Explanation: The article proposes redirecting the $31 billion in annual subsidies to “distributed solar,” which would help increase the share of renewable energy. It argues that the current system channels funds to “mature incumbents” (fossil fuels) while “emerging technologies” (renewables) compete without equivalent support.
3. Target 7.a: By 2030, enhance international cooperation to facilitate access to clean energy research and technology… and promote investment in energy infrastructure and clean energy technology.
   • Explanation: The article suggests that the public funds currently used for subsidies “could strengthen domestic energy independence, modernize the grid, and lower household costs.” It states that this money is unavailable for “resilience upgrades, innovation grants, or clean-tech manufacturing,” directly referencing investment in clean energy infrastructure and technology.
4. Target 13.2: Integrate climate change measures into national policies, strategies and planning.
   • Explanation: The article critiques the current national policy of subsidizing fossil fuels, which contradicts climate goals. It advocates for a policy shift—ending these subsidies—which would represent an integration of climate change measures into the country’s fiscal and energy strategy.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions several quantitative and qualitative indicators that can be used to measure progress.

• Indicator for Target 12.c (Indicator 12.c.1: Amount of fossil-fuel subsidies per unit of GDP): The article provides a direct monetary value for these subsidies.
  • Specific Data: It estimates “U.S. fossil-fuel subsidies now total about $31 billion annually,” with an additional “$4 billion per year for the next decade” from the 2025 federal tax package. Progress would be measured by the reduction of this amount.
• Indicator for Target 7.2 (Indicator 7.2.1: Renewable energy share in the total final energy consumption): While not providing a current percentage, the article offers a metric for progress in expanding renewable energy capacity.
  • Specific Data: It states that reallocating the $31 billion could “install panels on roughly 54 million homes nationwide within a decade.” The number of homes with solar installations serves as a tangible indicator of an increasing renewable energy share.
• Indicator for SDG 7 (Affordability): The article provides a clear indicator for measuring the impact on energy affordability for households.
  • Specific Data: It calculates that for a typical Maryland household, rooftop solar can “reduce bills by $1,400 to $1,600 per year,” which represents a “60–70 percent drop in energy costs.” This percentage reduction in household energy expenditure is a direct measure of affordability.
• Indicator for SDG 13 (Climate Action): The article implies an indicator for climate action by referencing historical data.
  • Specific Data: It notes that the U.S. shale revolution “drove carbon-dioxide emissions to their lowest levels in a generation.” This implies that the level of CO2 emissions is a key indicator for measuring the climate impact of energy policies.

4. Table of SDGs, Targets, and Indicators

Source: americanbazaaronline.com