MEMO: What to know about Reconciliation & Massive Giveaways to Big Oil and Polluter CEOs

TO: Interested Parties
FROM: Sara Chieffo, VP of Government Affairs, LCV
MEMO: What to know about Reconciliation & Massive Giveaways to Big Oil and Polluter CEOs

Right now, the U.S. House of Representatives is holding hearings on a sweeping, extreme and unpopular Reconciliation Bill that is slated to gut essential programs and protections to benefit billionaires and the powerful — including Big Oil CEOs. This bill is one of the most anti-environmental bills in our nation’s history with major ramifications for how aggressively we tackle climate change, whether or not we ban affordable clean energy, and whether or not we protect the air and water our communities and our economy depend upon.

At a time when Big Oil is raking in immense profits, Republicans in Congress are trying to give them even more handouts, while using those handouts to pay for tax cuts for billionaires. In the same breath, they’re doubling down on gutting Medicaid, slashing public education, and wrecking our chances at a safer, cleaner energy future to further line the pockets of wealthy polluters. Not only will Big Oil CEOs benefit from Trump’s tax cuts for the wealthy, they will also reap the profit rewards of rock-bottom royalty rates, non-competitive leasing, and weakened environmental protections. They’ll get to cut their taxes and cut corners — at the expense of our communities and our climate.

Every year, American taxpayers spend an estimated $20 billion propping up the fossil fuel industry through a complex web of direct subsidies, special tax breaks, and other publicly funded financing. Most of these giveaways are relics of a decades-old system designed to support an industry in its infancy, not one regularly reporting record profits. This rigged system distorts energy markets, undermines the transition to a cleaner, safer energy future, and shifts the economic and environmental burden of the industry’s recklessness onto American taxpayers, which is estimated to cost a staggering $649 billion every year.

Unsurprisingly, recent polling shows that 70% of voters across party lines think fossil fuel companies should pay for the damage they’ve caused. Yet with President Trump taking office and Republicans holding a congressional majority, fossil fuel companies are aggressively lobbying for even more handouts, largely through Republicans’ budget reconciliation legislation, which is slated to be the most dangerous anti-environmental bill in history. This memo outlines the major handouts the fossil fuel industry is currently pursuing, as well as the many taxpayer-funded subsidies and tax loopholes that oil and gas companies already exploit.

Fossil Fuel Handouts on the Horizon

Even as the fossil-fueled climate crisis intensifies and its costs to the American people multiply, oil and gas companies are pushing for more giveaways, many of which are now being considered in Republicans’ reconciliation bill. These giveaways add to corporate industries’ broader efforts to lower the corporate tax rate from 21% to 15%.

Reconciliation Bill

Mandated Lease Sales and Opening Special Places to Drilling: The reconciliation bill mandates massive oil and gas lease sales on public lands and waters, regardless of market demand, environmental harm, or community opposition. It also reverses longstanding protections to allow drilling in ecologically and culturally significant areas like the Arctic National Wildlife Refuge without any judicial review.
Pay-to-Play Environmental Review: The reconciliation bill would allow oil and gas companies to pay a fee to ensure a fast-tracked environmental review that cannot be challenged in court for any reason.
Rock-bottom Royalty Rates and Non-Competitive Leasing: The reconciliation bill lowers royalty rates and reinstates non-competitive leasing, allowing oil companies to pay American taxpayers even less for using our public lands and waters.
REINS (Regulations from the Executive In Need of Scrutiny) Act and Other Anti-Regulatory Actions: The REINS Act, which is currently included in the reconciliation bill, would cripple federal agencies’ ability to implement major climate and environmental rules by requiring congressional approval for any “major rule” with significant economic impact.
Streamlining and Expanding Applications for Permits to Drill (APDs): The reconciliation bill also contains provisions that would, for a fee, rubber stamp APDs, impose automatic approval deadlines cutting out all considerations of impacts, and extend their terms to four years.

Trump Administration

Skirting Accountability from Climate Damage: President Trump recently issued an executive order effectively calling on DOJ to challenge state and local lawsuits seeking compensation from oil and gas companies for climate-caused damage. The order seeks to support industry efforts to attain a full liability waiver for the harm and costs resulting from its actions.
Major Environmental Rollbacks: The Trump administration has taken action to undo multiple environmental protections, including 31 rules at EPA that protect clean air and water and a rule requiring oil and gas companies to clean up their old drilling equipment.
Sovereign Risk Insurance: Interior Secretary Doug Burgum recently indicated plans to force American taxpayers to pay oil and gas companies for “lost capital” if the U.S. government cancels a previously permitted fossil fuel project for any reason.

Together, these provisions undermine environmental protections that keep us safe, undo much-needed climate progress, and strengthen the fossil fuel industry’s grip on U.S. energy policy — all at an even more enormous expense for American taxpayers.

Existing Taxpayer-funded Fossil Fuel Subsidies & Handouts

As they have for decades, the oil and gas industry benefits from a wide array of financial benefits through our tax code, federal leasing practices, and other public financing. These ongoing, permanent subsidies, outlined below, funnel billions toward fossil fuel companies each year.

Major Tax Incentives for Oil and Gas Companies

Expensing of Intangible Drilling Costs (IDCs): Enacted in 1916 to attract businesses to what was then a risky venture, oil and gas companies can deduct most of the costs that are incurred before drilling begins, including labor, equipment rental, and site preparation. Estimated to cost taxpayers $3.3 billion over five years.[1]May be as much as $20 billion per year when the price of oil is particularly high.
Percentage Well Depletion: Lets certain producers deduct 15% of a well’s income, rather than the cost of the well. Over time, the sum of these deductions often exceeds the well’s cost. Estimated to cost taxpayers $3.6 billion over five years.
Amortization of Geological & Geophysical Costs: Allows amortization of the costs of collecting data for oil and gas extraction over two or seven years. Estimated to cost taxpayers $700 million over five years.
Passive Loss Exception for Oil Interests: Permits deduction of losses even if the oil and gas company is not heavily involved in a given operation. Estimated to cost taxpayers $100 million over five years.

Other Tax Code Loopholes

Creating Interest-Free Loans through Deferred Taxes: Due to the way certain subsidies are structured, oil and gas companies can defer major portions of their tax payments for decades. These deferred obligations effectively function as multibillion-dollar interest-free loans from American taxpayers (e.g., ExxonMobil owed more than $54 billion in 2013). When the 2017 Tax Cuts and Jobs Act slashed corporate tax rates from 35% to 21%, those cuts applied to companies’ deferred taxes as well.
Tax Write-Offs for Oil Spills: Cleanup costs from major oil spills (e.g., Exxon Valdez and Deepwater Horizon) can be deducted as “ordinary business expenses,” regardless of the company’s responsibility for the disaster. This has shifted tens of billions in cleanup costs to taxpayers; BP, for instance, claimed more than $15 billion in tax deductions for Deepwater Horizon cleanup costs.
Master Limited Partnerships (MLPs): Certain types of businesses, including those deriving at least 90% of their income from natural resource activities (e.g., oil, coal, and gas), can qualify as MLPs, affording them the tax benefits of partnerships. More than three-quarters of MLPs are fossil fuel companies, while clean energy projects do not qualify. Estimated to cost taxpayers $1.2 billion annually.
Last In, First Out (LIFO) Accounting: The LIFO accounting method allows companies to sell their newer inventory first, as opposed to the First In, First Out method. In doing so, companies can sell their most expensive reserves first, which gives them the tax benefit of reducing the value of their inventory.
Foreign Tax Loopholes (FOGEI, FORI, Dual Capacity Rules): These loopholes enable companies to avoid paying U.S. taxes on overseas income. Oil and gas companies have a history of using creative accounting to exploit these exemptions, which were expanded significantly through the 2017 Tax Cuts and Jobs Act. Estimated to cost taxpayers $32.8 billion over five years.

Other Forms of Public Financing

Federal Research & Development for Fossil Fuels: The Department of Energy, namely the Office of Fossil Energy and Carbon Management, has invested billions of dollars in research and development projects that benefit the fossil fuel industry, including carbon capture technologies, enhanced oil recovery, and methane management technologies, all of which support the continued use of fossil fuels, rather than cleaner energy sources.
Export-Import Bank and the U.S. International Development Finance Corporation: While not exclusively a fossil fuel financier, both entities have played a major role in financing billions of dollars of fossil fuel development projects and infrastructure overseas, including gas pipelines, LNG terminals, and drilling equipment. Recent reforms under the Biden administration have restricted some international financing, but significant loopholes and exceptions remain.
Strategic Petroleum Reserve Maintenance: The SPR was designed for energy security, but it also serves to shift the burden of maintaining and storing massive crude oil stockpiles that help absorb market shocks from private companies to taxpayers.
Emergency Bailouts: During the COVID-19 pandemic, taxpayers paid $10.4 to $15.2 billion in direct bailouts to fossil fuel companies, plus over $94 billion in indirect financial benefits — far more than most sectors received. This included tax refunds, PPP loans and other subsidized loans, federal bond purchases, and royalty relief and lease waivers.

State-Level Subsidies

In addition to extensive federal support, fossil fuel companies benefit from billions in subsidies at the state level, including tax breaks, direct payments and grants, reduced royalties and other fees, exemptions from pollution measures, and bonding loopholes. This financial support often comes at the expense of funding for local education, health care, and infrastructure.

[1] Cost estimates in italics are based on a Congressional Research Service analysis, as of December 2024.

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