US Revenues from Fossil Fuels, Responsible for $138 Billion Annually, Expected to Fall Regardless of Climate Action

The authors find that government revenues are expected to decline under all scenarios, even in the absence of new climate policies. Petroleum product taxes, which represent the single largest revenue source, decline under all scenarios. Oil and gas extraction, the second largest revenue source, is relatively stable under business-as-usual and 2 °C conditions but declines more rapidly under a 1.5°C scenario.

Notably, coal revenue falls dramatically under all scenarios, declining to zero by 2040 under the 2°C and 1.5°C scenarios.

Wyoming, North Dakota, Alaska, and New Mexico are the states most dependent on fossil fuel revenues. There, more than 14 percent of total state and local revenues comes from fossil fuels—in Wyoming, that number rises above 50 percent. This money is vital for funding services like schools, public health, and infrastructure.

“For society as a whole, the costs of fossil fuel use far outweigh the fiscal losses that we estimate in this paper,” lead author and RFF Fellow Daniel Raimi said. “But we can’t forget that for some communities, these industries are economic backbones. We hope that our research will help decisionmakers understand the scale of the challenge, then work toward solutions to support communities in transition."

For some regions, particularly where oil and gas extraction can be done at low cost and with low emissions, major changes may not happen for another decade or two. This lag provides a window of opportunity for decisionmakers to begin investing existing revenue into savings funds, adopting new tax policies, and diversifying local economies.

Notably, this paper does not estimate future revenue growth from the clean energy sector. Clean energy may be a significant driver of future government revenue, but the places where these emerging industries may boom will not necessarily be the same places that have historically relied on fossil fuels.

“The name of the game will be adaptation,” coauthor and RFF University Fellow Gilbert Metcalf said. “And to adapt, communities will need support, especially from the federal government. Our research shows that the energy transition will create fiscal challenges, but the scale of those challenges will depend on whether policymakers plan ahead by adopting smart tax policies and investing in new economic sectors, including clean energy.”

For more, read the paper, “The Fiscal Implications of the US Transition Away from Fossil Fuels,” by RFF Fellow Daniel Raimi, Georgia Institute of Technology Assistant Professor Emily Grubert, Environmental Defense Fund (EDF) Senior Analyst Jake Higdon, Tufts University Professor and RFF University Fellow Gilbert Metcalf, RFF Research Analyst Sophie Pesek, and EDF Post-Doctoral Economist Fellow Devyani Singh.

Be sure to check out the related blog post, “More Than Just Jobs: Assessing the Public Finance Implications of the Energy Transition," and lead author Daniel Raimi's TikTok that has some fun summarizing these findings.