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Abstract To address the inability of the traditional thermal energy balance to explain field observations in the atmospheric boundary layer (ABL), this study investigates total energy conservation for atmospheric applications. Total energy conservation serves as a unique constraint on variations among different energy forms, especially when these variations are interconnected, as observed in the non‐isothermal atmosphere. In contrast, the first law of thermodynamics for the derivation of the traditional thermal energy balance is a special case of total energy conservation for a closed system at rest with thermal energy variations only. By keeping both total and kinetic energy conservation, a generalized thermal energy balance is found to contain two additional terms related to airflows compared with the traditional balance. They represent the thermal energy contribution to non‐hydrostatic energy transfer via heat transfer by vertical airflows and dissipation heating via air viscosity due to airflow deformation. Because of the effective vertical heat transfer by airflows, the non‐hydrostatic energy transfer contributes to major stability‐dependent differences between the traditional and generalized thermal energy balances. The stability‐dependent bias of the traditional balance is consistent with disagreement between field observations and traditional theoretical expectations such as the well‐known observed surface thermal energy imbalance, among others.