Energy Subsidies: The American Way

Contributed by Lily Scherer. Lily joined the team as the Renewable Energy Economic Impact Intern for the summer of 2025. She is pursuing a Bachelor of Science in International Affairs with a concentration in International Economics at The George Washington University.

Subsidies have long accelerated American energy production. And these subsidies have had their intended impact: in 2023, the United States ranked as the world’s second-largest energy producer, leveraging government support to develop a multi-trillion dollar energy industry that provides reliable, affordable power with an all-of-the-above strategy that advances national security and drives the world’s largest economy. 

More Than a Century of Subsidies

The US government has a deep history of subsidizing energy, starting in 1916 when Congress introduced tax incentives to boost fossil fuel production and industry during World War I. From 1918 to 1932, the US government continued to subsidize oil and natural gas to the tune of $1.8 billion per year (adjusting for inflation). The subsidies protected American interests and boosted the economy in our time of need.

Fast forward to 1973, and America faced yet another threat to national and economic security. The oil embargo implemented by the Organization of the Petroleum Exporting Countries' Arab members shocked the country, and the US economy shrunk by nearly $70 billion in just a year. To save consumers from soaring gas prices and social, economic, and geopolitical instability, the federal government increased its support for alternative forms of fuel and electricity, like nuclear and renewables. 

America’s use of subsidies didn’t end there. Between 1994 and 2009, Democratic and Republican administrations alike subsidized renewable energy with almost $400 million per year to diversify the country’s energy mix, keep electricity bills economical, and scale up energy production to meet rapidly rising demand. On both sides of the aisle, subsidies have often been viewed as practical tools to add to the energy sector’s existing capacity and stabilize prices for American consumers.

Essential Support For Energy’s Development

Beyond protecting America’s national security interests and encouraging economic growth, subsidies have been key to the early-stage development of the energy industry itself. By targeting emerging fuel sources, the federal government helped the industry scale up and deliver affordable power more efficiently.

During the first 15 years of federal support for fossil fuels, subsidies averaged an inflation adjusted $1.8 billion per year. Comparatively, during the first 15 years of support for nuclear and renewables, the government offered an average of $3.3 billion and $400 million of support per year, respectively, to encourage the industries’ economic growth – speeding up development timelines and keeping prices manageable for consumers.

As the primary source of energy in the US, fossil fuels have received more in federal subsidies than any other type of energy. According to a report commissioned by the Energy Information Association, fossil fuels received $676 billion in federal support between 1950 and 2016. Oil alone received $302 billion between 1950 and 2003, almost half of all federal support for energy over that time period.

Since the late 1990s, the trajectory of renewable energy subsidies has mirrored that of fossil fuels. Between 1950 and 2016 renewable energy subsidies comprised only 16% of all federal energy subsidies. From 2016 to 2022, the number jumped to almost 53%, with wind and solar subsidies totaling over $55 billion. Just like oil and gas decades earlier, renewables got the push they needed to develop quickly and keep pace with America’s rising demand for power, and now receive fewer federal subsidies. 

For policymakers, the motivation has stayed consistent: keep energy reliable, affordable, and abundant. That’s why administrations from both parties have invested heavily in the American energy industry. And based on calculations made from data in a report written for DBL Partners, it worked: federal support helped expand the renewable energy industry’s capacity enough to power an extra one million homes each year between 1994 and 2009 – growth that wouldn’t have happened on its own.

Subsidies Are Not A Permanent Tool  

Government investment in fuel sources isn’t about propping up industries forever; it's about giving them the boost they need to start being used before they are fully cost competitive. Subsidies help stabilize prices and spark development, and as the industries mature, they ideally will rely less on federal support. Fossil fuels are a clear example: between 2016 and 2022, their share of total subsidies dropped by 42% from what they received from 1950 to 2016. Viewed in this context, the increased support for renewables in recent years wasn’t a policy shift, but simply an extension of America’s longstanding approach: investing in emerging energy sources until they become self-sustaining.