As GOP Tries to Pass Tax Bill, Senate Includes Billions in Benefits for Oil Industry

As the Senate works this week to pass major legislation that would slash taxes, climate programs and government spending, Republicans are poised to include billions of dollars in benefits for the oil and gas industry.

The new oil-targeted tax changes would cost the federal government about $18 billion in lost revenue over a decade, according to an analysis released Saturday by Congress’ Joint Committee on Taxation. For comparison, a plan to end a tax credit for energy-efficient home improvements was projected to save about $21 billion over the same period.

Environmental groups said the proposal, included in draft language released last week by the Senate Finance Committee, subsidizes fossil fuel companies at the expense of the American people.

“This is a reckless expansion of Big Oil handouts paid for with cuts to the social safety net,” said Lukas Shankar-Ross, deputy director for climate and energy justice at Friends of the Earth Action, part of a coalition of advocacy groups called United to End Polluter Handouts. “It’s pretty straightforwardly monstrous.”

On Monday, the coalition announced a six-figure advertising campaign to pressure senators to oppose the tax incentives.

The office of Senate Finance Committee Chairman Mike Crapo (R-Idaho) did not immediately respond to a request for comment. But Crapo said in a statement last week that the committee’s draft would provide tax relief to middle-class families, extend “pro-growth provisions” and introduce “new incentives for domestic investment.” He added that the legislation “also achieves significant savings by slashing Green New Deal spending” and, he claimed, cutting waste. 

Congressional Republicans are working to pass a sprawling bill to extend and expand tax cuts enacted in 2017 under reconciliation rules that would allow them to pass the Senate with a simple majority. The House of Representatives passed its version of the bill in May, including the near-complete repeal of the most consequential climate and renewable energy provisions of the Inflation Reduction Act of 2022. The House bill would also significantly cut spending for Medicaid and other social programs.

The initial Senate drafts kept most of those changes from the House and included additional benefits that oil companies have sought for years. The most significant would affect a tax incentive for carbon capture and storage. 

Existing law provides a tax credit of $85 per ton for companies that remove carbon dioxide from smokestacks and pump it underground for permanent storage so it won’t warm the climate. Oil companies can also use that captured carbon dioxide to squeeze more crude out of depleted oil fields, and current law provides a tax credit of up to $60 per ton of carbon dioxide for this practice. 

The Finance Committee’s proposal increases the value for this so-called “enhanced oil recovery” to match the higher $85 per ton figure.

Energy companies can currently reap an even higher credit, of up to $180 per ton of carbon dioxide, if the climate pollutant is pulled straight from the air. The legislation would similarly allow companies to qualify for the highest amount even if they used the captured greenhouse gas to pump more oil.

The Joint Committee estimated these changes would cost $14.2 billion over a decade.

The American Petroleum Institute did not reply to a request for comment, but its chief executive, Mike Sommers, praised the Senate draft in a statement last week: “This proposal strengthens key investment provisions and encourages oil and natural gas development to meet growing demand for affordable, reliable energy.”

The Senate’s move was a shift from the House version of the bill, which would have restricted companies’ ability to qualify for the carbon capture tax credit.

Some oil companies and trade groups pushed for years to equalize the value of the tax credit irrespective of whether it is used for oil production. One of the biggest beneficiaries could be Occidental Petroleum, which has extensive investments in enhanced oil recovery—depleted fields that can only produce when carbon dioxide is pumped into them. Occidental is building a project in West Texas that would remove carbon dioxide from the air and either store the gas underground or use it to produce oil.

ExxonMobil, which has positioned itself as a leader in carbon capture technology and which acquired a major enhanced oil recovery company in 2023, would also stand to benefit.

Neither Occidental nor Exxon immediately responded to requests for comment.

Another change would allow oil companies to deduct certain drilling expenses against the corporate alternative minimum tax, a provision of the Inflation Reduction Act that was meant to prevent companies reporting large profits from avoiding paying income tax. The change would lower the tax burden for oil companies that are subject to the minimum tax, primarily large, publicly traded independent oil companies, according to an analysis by United to End Polluter Handouts. The Joint Committee determined this change would cost $427 million over a decade.

A third measure would expand an existing tax break that benefits many pipeline companies. Legislation passed by the House has similar language to expand this benefit to include companies transporting hydrogen and carbon dioxide. The Senate language would expand it further to include companies involved in nuclear or geothermal energy, according to an analysis by the Bipartisan Policy Center. The cost for the change would total $3.2 billion over a decade, according to the Joint Committee.

The most recent Senate drafts also include other measures sought by the oil industry that were already in the House reconciliation bill, among them reductions in the royalty rates that drillers pay for oil and gas produced on public lands and in public waters. The Senate proposal would also mandate more frequent oil and gas lease sales and would repeal tax credits for buying electric vehicles. 

The bill could still change as senators work to finalize it this week. Republicans face some significant disagreements, and it’s unclear whether House Republicans would support keeping the added tax breaks for oil and gas companies and the higher price tag they would bring.