Critics of subsidies and mandates for clean energy, energy efficiency, and electric vehicles, say these technologies should be able to compete on a level playing field. Fossil fuels still enjoy world-leading subsidy support, after more than 2 centuries.

Coal has been used to power industrial machinery since before the American Revolution, 250 years ago. Its use in smelting of iron and other metals was known in medieval times and widespread by the 1600s. According to Science Magazine:

Evidence such as fragments of low-quality coal in fireplaces suggests people have been sporadically burning coal since the late Paleolithic, more than 10,000 years ago. But the first reliable written records of the widespread use of coal don’t show up until about 2000 years ago, during China’s Han dynasty.

There is new evidence coal was widely used in China 3,600 years ago. A settlement in what is now the Xinjiang Autonomous Region, in China—”a large Bronze Age settlement known as Jirentaigoukou”—shows signs of organized large-scale coal consumption. Depletion of forests may have been one motivation for using coal as a substitute, but there is also evidence coal was used to superheat metal, to make tools that give the Bronze Age its name.

Fossil fuels have been in use for a long time—thousands of years. The modern history is linked to the Industrial Revolution. As early as 1712, steam engines were being used inside coal mines, to power pumps that kept mine shafts from flooding. Steam engines were powered by coal and allowed the industrialization of production in many areas, from textiles to tools, consumer goods, and building materials. 

Oil and fossil gas began to play a bigger role in the late 19th and throughout the 20th centuries, as the need for combustion-powered energy systems spread througout the economy. Industrialized fossil energy has been a priority for more than 100 years in almost all nations, and more than 200 years in those that industrialized first. 

The International Monetary Fund has found that global subsidies for fossil fuels amounted to $7 trillion, equivalent to 7.1% of all economic activity, in the year 2022. Subsidies have continued growing, even as all countries are making commitments to reduce climate pollution.

The costs of this massive investment are widespread pollution of air and water, disruption of Earth’s climate system, which further disrupts watersheds, ecosystems, and the habitability of both rural and urban areas. The $7 trillion figure does count some of the underpricing of real-world costs, which result in public expenditures, but it does not count all of the costs of climate destabilization, or embedded costs of unsustainable practices, including use of fossil fuels, throughout our food systems.

For reference: 

• The 2022 Global Turning Point report found unchecked climate disruption would cost $178 trillion by 2070. 
• The Food System Economics Commission has tracked $143.25 trillion spent on the costs of unsustainable food systems, since April 2016. (If you were to round 0.25 to 0.2 or 0.3, that value difference is $50 billion.)
• The Commodity Futures Trading Commission found in 2020 that unchecked climate change would destabilize the financial system and undermine its ability to support the everyday economy.
• In 2021, the Financial Stability Oversight Council issued a similar finding, warning “Climate change is an emerging threat to the financial stability of the United States.”
• Since mid-2024, there have been two extreme weather events fueled by global heating that are projected to cost more than $250 billion each (Hurricane Helene and the Los Angeles fires), over the coming years and decades, as aftermath and rebuilding play out.
• The total cost of 403 disasters in the U.S. costing $1 billion or more since 1980 is reported to be $2.945 trillion. 17% of that cost over 45 years has been generated in the last 12 months. 

Proponents of fossil fuels, and the immense support they receive from taxpayers—despite centuries of being “a mature industry” with near universal market dominance—cite the wider economic activity linked to fossil fuels. The argument is that the mainstream economy depends on them. This is a red herring argument—a distraction from the bigger school of fish.

The reality is: That wider economic activity can be achieved, in our time, through any kind of energy. Clean energy systems are less expensive, more flexible, more easily decentralized and micro-scaled, and do not cause millions of deaths or trillions of dollars in waste per year. They do, however, create more jobs and distribute new income more widely, creating conditions for a bigger middle class economy and more sustainable prosperity.

There may be room for some targeted public support for fossil fuels during a coordinated transition to smarter, cleaner energy systems. By smarter, we mean not only less destructive and wasteful but also more networked and manageable through smart grid technologies—which further enhance the cost-efficiency of clean energy systems.

In many parts of the world, however, fossil fuel subsidies are so costly they are draining public budgets, undermining fiscal stability, and with it the wider mainstream economic opportunity and even the political stability of nations. The IMF advocates for subsidy reform, to ensure investments in new industrial and economic development are optimized to create value locally, not just for major international corporations or trading partners, or at the expense of future generations.

One of the key reforms required to rationalize energy systems is more accurate fossil fuel pricing. This can be achieved through market reforms, carbon pricing policies, or the removal of some specific kinds of subsidies. This can also be destabilizing, because in places dedicating the most inefficient subsidies to fossil fuels, the subsidies are a stand-in for genuine economic development investment—funding the purchase of reimported foreign-refined fossil fuels, instead of creating conditions for improved livelihoods and increased incomes across the domestic economy.

Solar energy systems are a good way to do just that. Because solar photovoltaic systems can be installed at micro-scale, one panel at a time, off-grid or in local micro-grids, and because connected solar grids can allow homeowners and small businesses to sell energy back into the wider energy system, more jobs and more income can be made available locally.

The clean economy will be one in which IT-enabled flexible, sustainable systems are installed and maintained locally, with corresponding localization of wealth-creation and mainstream economic reinvestment. It makes far more sense, economically, to subsidize that kind of activity, even if there were not trillions of dollars in wasted attached to the old industrial systems. 

One of the core questions about the technology innovation race in our age is: How quickly can countries move toward rational energy investment from the public and private sectors, and across the consumer economy? 

• Tech companies aiming to expand electricity production to power artificial intelligence systems are welcoming any and all forms of new energy production, lobbying for or investing in fossil gas and nuclear systems. 
• They may be setting themselves up for unnecessary cost, waste, inefficiency, and barriers to scaling. 
• Those countries that establish everywhere-active, always-on flexible, distributed clean energy smart grids will be those most able to add scale, power new technology capacity, and deliver end-user value most efficiently.

Future economic opportunity—at the macro and micro scales, in terms of fiscal resilience, job creation, and everyday value creation—will depend on whether energy is subsidized rationally or wastefully.

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