Massive 'End Polluter Welfare' Bill Scraps Fossil Fuel Tax Breaks, Hikes Drilling Royalties, and Ends Carbon Capture Credits

The “End Polluter Welfare Act of 2025” is not subtle. This sweeping legislation aims to yank away nearly every federal financial lifeline currently extended to the fossil fuel industry—coal, oil, and natural gas. If you’re busy and need to know the bottom line, the bill’s main purpose is to raise government revenue and shift the economic landscape by eliminating tax breaks, increasing fees, and cutting off federal funding streams for fossil fuel projects, including carbon capture and storage (CCS).

The Tax Breaks Are Over

For anyone working in the energy sector or paying attention to corporate taxes, this bill is a game-changer. It eliminates a laundry list of tax incentives that have been standard practice for decades. For instance, the bill scraps the special rules that allow companies to take a percentage depletion allowance (Section 206) and ends the ability for oil, gas, and coal companies to use the Last-In, First-Out (LIFO) inventory accounting method (Section 205), which typically lowers their tax bills during inflationary periods. If you’re in the business of extraction, your taxes are going up.

Perhaps the biggest hit to immediate cash flow comes from changes to how companies write off their initial costs. Currently, many exploration and drilling costs can be deducted quickly. This bill forces companies to spread out major expenditures—like geological and geophysical costs (Section 203), mine development costs (Section 215), and intangible drilling costs (Section 217)—over a much longer 84-month period (seven years). This means companies pay more taxes upfront, slowing down investment returns and making new projects more expensive to finance.

Paying More to Drill

If a company is drilling on federal land or in federal waters, they are about to pay significantly more to the government. The bill raises the minimum royalty rate for coal, oil, and gas leases on federal land and the Outer Continental Shelf (OCS) from the current rates (often around 12.5% or 16.67%) up to a minimum of 18.75% (Sections 103, 104). This change applies to new leases and hits the bottom line of every company that extracts resources from public lands.

On top of higher royalties, the bill introduces a brand new 13% severance tax on all oil and natural gas produced from the Gulf of Mexico OCS (Section 212). While producers get a credit against this tax for the royalties they already paid, this still represents a significant new federal levy on offshore production, directly increasing the cost of operations in one of the country's most productive energy regions starting in 2026.

Liability and Cleanup: No More Caps

This legislation dramatically increases financial risk for companies involved in oil transport and drilling. It removes the liability cap for oil spills from offshore facilities and, critically, for onshore facilities transporting diluted bitumen (heavy crude oil) (Section 106). This means if there’s a major spill from an offshore platform or a pipeline carrying heavy crude, the responsible company faces potentially unlimited financial responsibility for cleanup costs.

Making matters worse for the polluter, the bill also denies the ability to deduct those cleanup costs and damages from federal taxes if the company is found liable under the Oil Pollution Act of 1990 (Section 211). For regular folks, this means the financial burden of a major environmental disaster stays squarely on the company, not the taxpayer, and the company can’t write off its mistake as a business expense.

Federal Funding is Off Limits

Federal agencies that fund energy projects are getting new marching orders. The bill prohibits the Department of Energy’s Loan Programs Office (LPO) and the Advanced Research Projects Agency-Energy (ARPA-E) from funding projects related to fossil fuels (Sections 109, 111). Similarly, international financing organizations like the Export-Import Bank and the Development Finance Corporation (DFC) are blocked from using U.S. funding to support any fossil fuel production or use project overseas (Section 114).

In a major organizational change, the bill completely terminates the Department of Energy’s Office of Fossil Energy and Carbon Management (Section 108). Any unspent money allocated to that office is immediately rescinded, effectively dissolving the federal government's primary administrative body dedicated to advancing fossil fuel technology, including carbon management.

The Carbon Capture Credit Gets the Axe

One of the most significant changes is the termination of the Section 45Q tax credit for carbon oxide sequestration (CCS) (Section 222). This credit, which provides a valuable incentive for capturing and storing carbon dioxide, stops applying to any carbon captured after the bill’s enactment date. For companies that have invested billions in CCS technology—often seen as a bridge technology to decarbonization—this sudden removal of the primary financial incentive will likely halt or severely restrict future projects. The bill also removes refined coal from eligibility for the renewable electricity production credit (Section 219).

Repealing Recent Laws

This bill doesn't just change current law; it actively undoes several recent pieces of legislation. It repeals sections of the Inflation Reduction Act related to offshore oil and gas leasing and scraps several provisions from the “One Big Beautiful Bill Act,” including those that changed drilling cost rules and certain manufacturing tax credits (Section 303).

Perhaps most impactful for infrastructure and development is the repeal of several sections of the National Environmental Policy Act (NEPA) that were recently added (Section 301). While the bill's stated intent is to remove fossil fuel subsidies, these specific NEPA repeals could also streamline or weaken environmental review requirements for a wide range of infrastructure projects, not just those related to fossil fuels, by eliminating several procedural safeguards.