Democrats on the Senate Budget Committee rehashed misleading rhetoric about energy subsidies in a recently released report. This time, they claim the One Big Beautiful Bill (OBBB) subsidizes natural gas, oil, and coal by an average of $3.5 billion a year. Once again, it is necessary to set the record straight.
The Senate Democrats’ report is not a principled accounting of government largesse, but rather a partisan document designed to defend the Inflation Reduction Act’s (IRA) massive, open-ended green energy subsidy regime by attacking the far more modest provisions that benefit energy sources they dislike. Those IRA-subsidized sectors are also overwhelmingly dependent upon China for their sourcing, unlike domestic hydrocarbon resources. The U.S. leads the world in oil and natural gas production and has the world’s largest coal reserves.
The Big Picture—Senate Democrats Liked the IRA’s $4.7 Trillion in Green Subsidies
Before addressing the specific claims in this report item by item, it is worth stepping back to ask a threshold question. Do Senate Budget Committee Democrats actually object to federal subsidies for energy, or only to subsidies that benefit industries they disfavor?
The answer is plainly the latter. The same Democratic minority that authored this report enthusiastically supported the Inflation Reduction Act, which was packed with open-ended, uncapped energy tax credits. A Cato Institute analysis by Travis Fisher found that those IRA energy subsidies could have cost taxpayers as much as $4.7 trillion by 2050. By contrast, this report claims the One Big Beautiful Bill Act provides $3.5 billion per year in new subsidies for oil, coal, and natural gas — a figure that, even taking it entirely at face value and projecting it out to 2050, amounts to roughly $91 billion. Adding in the claimed $31 billion annually in pre-existing fossil fuel subsidies that the report also tallies, the report implies a total of approximately $897 billion in cumulative fossil fuel subsidies through 2050.
In other words, even accepting every dollar figure in this report as accurate—which, as we demonstrate below, is not true—the IRA’s energy subsidies were more than five times larger than all the subsidies this report decries. Senate Democrats were not merely tolerant of those IRA subsidy levels; they celebrated them. The selective outrage here is not a principled stand against corporate welfare. It is an ideological argument designed to cast routine tax policy and the reversal of punitive IRA provisions as scandalous “handouts.”
With that context in mind, we turn to the specific provisions the report identifies and explain why the vast majority of them do not constitute subsidies in any meaningful sense.
IDCs and Corporate AMT: $42.7 million per year, $427 million over 10-years
This provision merely reverses a covert attack on the oil and gas industry from the IRA. The IRA created the new corporate Alternative Minimum Tax (AMT). The IRA allowed capital expenditures to be deducted to adjust eligibility for the AMT, but it excluded oil and gas capital expenditures (Intangible Drilling Costs, or IDCs) from deduction eligibility. This was disparate treatment deliberately intended to harm the oil and gas industry. The OBBB reversed this targeted attack, reestablishing equal footing for oil and gas capital expenditures when calculating the corporate AMT. This is not a subsidy, unless one believes that literally any tax provision used by an oil and gas company is a “subsidy.”
Master Limited Partnerships (MLPs): $320 million per year, $3.2 billion over 10-years
MLPs are a type of company organization that is not limited to energy companies. Green activists have targeted this business structure because many large pipeline companies use it. It is sophistry to call it a “subsidy” for anyone, any more than being an S-corp, a C-corp, an LLC, or any other business structure is a “subsidy” for the companies operating under that structure. Each type of business organization has different benefits and drawbacks in its tax treatment.
45Q Carbon Capture expansion: $1.42 billion per year, $14.2 billion over 10-years
This is properly classified as a subsidy, and IER has long opposed it and advocated for its repeal, including in the OBBB negotiations. But, of course, this is a subsidy designed to support green decarbonization goals. So the inclusion of this data point is not a principled opposition to subsidies, but rather a complaint about their own tax credit being expanded to include more projects.
45X Advanced Manufacturing PTC expansion to metallurgical coal: $150 million per year, $1.5 billion over 10-years
This is also properly classified as a subsidy. IER opposed the creation of this Production Tax Credit (PTC) in the IRA and advocated for its repeal in OBBB negotiations. Here again, the advanced manufacturing PTC was created to subsidize green projects. The complaint that it is being expanded to include more beneficiaries is a bit hypocritical.
Royalties for oil and gas production on federal lands: $1.2 billion per year, $12 billion over 10-years
The IRA aggressively raised royalties and fees on oil and gas production on federal lands. This was a targeted assault on the industry, seeking to make production on federal lands more costly in the hope of choking off investment and meeting the Biden administration’s goal of halting oil and gas development on federal lands. The OBBB simply repealed those tax increases, returning to the previous status quo. Calling this a “subsidy” is to rob the word of any meaning.
Reduced coal royalties on federal land: $120 million per year, $1.2 billion over 10-years
Whether this counts as a subsidy is in the eye of the beholder. There is no “objective” royalty rate for energy development on federal lands. The rate is set at whatever level Congress deems appropriate. While this rate is lower than the previous practice, it is a subjective question whether the previous royalty rate was correct. Reports from Oil Change International claim the earlier rate was also a subsidy.
Repeal of royalty on vented/flared methane: $3 million per year, $30 million over 10-years
The royalty on vented/flared methane was created by the IRA as part of that legislation’s attack on oil and gas and support for “green” technology. Reversing the attack is not a “subsidy” much like the ones described above.
Delay of methane Waste Emissions Charge (WEC) for 10 years: $150 million per year, $1.5 billion over 10-years
The methane WEC was another provision of the IRA included to attack the oil and gas industry. Like the increased royalty rates, the intent was to artificially raise the cost of developing domestic oil and gas resources in pursuit of green “keep it in the ground” goals. Once again, reversing this tax is hardly a subsidy.
Elimination of CAFE program penalties: $37.4 million per year, $374 million over 10-years
Eliminating Corporate Average Fuel Economy (CAFE) penalties was a policy decision by Congress driven by the substantial abuse of the CAFE program by both the Obama and Biden administrations. Both administrations sought to use the CAFE program to impose de facto electric vehicle mandates. Eliminating the penalties reduces a future administration’s ability to undertake similar overreach. Including these fines in any list of “subsidies” twists the term to meaninglessness. And in any case, this supposed subsidy is reaped by auto manufacturers, not energy companies.
The Bottom Line
Adding it all up, the two elements of the list, which are unquestionably subsidies (and we oppose), come to $1.6 billion of the claimed annual total. But that is just a drop in the bucket compared to the cost of the subsidy provisions – which every Democrat in the Senate supported – under the IRA itself. The Department of the Treasury’s estimates for 45Q range from $20–$30 billion over 10 years, with outside estimates exceeding $100 billion. For 45X, the Joint Committee on Taxation revised its estimate upward to over $72 billion over just the first five years. IER supports the repeal of both 45Q and 45X and welcomes support from Senate Budget Committee Democrats in that pursuit. The arguably-a-subsidy coal provision is merely $120 million a year — barely a rounding error in federal spending.
The bulk of the remaining supposed subsidies — IDCs, federal lands royalties, and the methane WEC, amounting to around $1.4 billion, are merely reversals of punitive attacks on the oil and gas industry written into the IRA in 2022. Repealing ideologically driven tax increases is not a “subsidy.”
The remaining provisions on MLPs and CAFE are not “subsidies” in any normal understanding of the term and, in any case, are not special deals for the oil and gas industry. They are policy disagreements, rebranded as “subsidies” to bulk up the total number.
The Senate Budget Committee Democrats should be more honest with the American people. This report is not a principled accounting of government largesse, but rather a partisan document designed to defend the IRA’s massive, open-ended green energy subsidy regime by attacking the far more modest provisions that, in most cases, undo the punitive and unjustifiable attacks on conventional energy that were included in the Inflation Reduction Act.
