End Oil and Gas Tax Subsidies Act of 2025: Pulling the Plug on Industry Breaks

The End Oil and Gas Tax Subsidies Act of 2025 is pretty much what it sounds like: a bill aimed at eliminating a bunch of tax breaks and subsidies that currently benefit oil and gas companies. Introduced in 2025, this legislation targets several existing provisions in the tax code that allow these companies to reduce their tax burdens, potentially increasing government revenue and leveling the playing field for renewable energy. It is effective at the end of 2024.

Killing the Tax Credits

The core of the bill is about repealing various tax deductions and credits. Here’s a breakdown of the major changes:

• Geological and Geophysical Expenditures (Section 2): Right now, oil and gas companies can write off the costs of exploring for new deposits over 24 months. This bill stretches that period to 7 years. Translation: Companies will have to spread out these deductions over a longer time, meaning they'll pay more taxes upfront. For example, if a company spends $1 million on seismic surveys, they can currently deduct that full amount over two years. Under this bill, they'd only deduct a portion each year for seven years.
• Marginal Wells (Section 3): The bill gets rid of the tax credit for production from marginal wells (wells that are nearing the end of their productive life). This means companies operating these older, less productive wells will lose a tax break, potentially making some of them uneconomical to operate.
• Enhanced Oil Recovery (Section 4): The bill eliminates a credit for using specific techniques (like injecting CO2) to get more oil out of existing wells. Again, this removes a financial incentive for oil companies.
• Intangible Drilling Costs (Section 5): Currently, companies can immediately deduct a large portion of the costs associated with drilling new wells (things like labor, supplies, and repairs). This bill eliminates that immediate deduction, requiring these costs to be capitalized and deducted over time. Real-world impact: A small drilling company that spends $500,000 on drilling costs might currently deduct most of that in the first year. This bill would force them to spread that deduction out, increasing their immediate tax liability.
• Percentage Depletion (Section 6): This is a big one. Percentage depletion allows companies to deduct a fixed percentage of their gross income from oil and gas sales, regardless of their actual investment in the property. This bill repeals that entirely. Example: A company with $10 million in gross income from an oil well might currently deduct $1.5 million (15%) under percentage depletion, even if their actual costs were much lower. This bill would eliminate that deduction, significantly increasing their taxable income.
• Tertiary Injectants (Section 7): The bill removes the deduction for the cost of injecting substances (like chemicals) into wells to enhance production. This means higher operating costs for companies using these techniques.
• Passive Loss Limitations Exception (Section 8): This is a bit technical, but basically, it removes a tax loophole that allows certain investors in oil and gas properties to deduct losses more easily. Closing this loophole could make these investments less attractive.
• Qualified Business Income (Section 9): Oil and Gas activities will not be allowed the Qualified Business Income (QBI) Deduction.
• Last-In, First-Out (LIFO) Accounting (Section 10): The bill prohibits large oil companies (producing over 500,000 barrels a day and with over $1 billion in gross receipts) from using the LIFO method for inventory. LIFO can allow companies to reduce their taxable income during periods of rising prices. Forcing them to switch accounting methods could lead to higher tax bills.
• Foreign Tax Credit (Section 11): This section tightens the rules on how oil and gas companies can claim credits for taxes paid to foreign governments. It specifically targets "dual capacity taxpayers" (companies that both pay taxes and receive a specific economic benefit from a foreign country) and limits the amount they can claim as a credit. Example: If a company pays taxes to a foreign country and also benefits from a special royalty agreement, the amount of foreign tax they can claim as a credit on their U.S. taxes will be capped.
• Tar Sands Definition (Section 12): The bill clarifies that "crude oil" for tax purposes includes oil derived from tar sands. This means these sources will be subject to the same excise taxes as conventional crude oil. It also gives the Secretary of the Treasury the power to add other types of crude oil to the taxable list if they pose a similar environmental risk.

Real-World Ripple Effects

All these changes have one major goal: to make it more expensive for oil and gas companies to operate and, theoretically, to reduce the financial incentives for fossil fuel production. The immediate impact will likely be felt by oil and gas companies, who will see their tax bills increase. Whether this translates to higher prices at the pump for consumers is a bit more complex, as it depends on a variety of market factors. However, reduced domestic production could contribute to price increases. It's also possible that companies might try to shift their operations or find other tax loopholes to offset these changes.

The Bigger Picture

This bill is clearly designed to reduce government support for the fossil fuel industry. By eliminating these tax breaks, the government could see increased revenue. This money could potentially be used for other purposes, like investing in renewable energy or reducing the national debt. The bill also aims to create a more level playing field for renewable energy sources, which don't receive the same level of tax benefits as the oil and gas industry. The long-term effects could include a shift towards cleaner energy, but it also presents challenges for the oil and gas sector and the workers they employ.