New Act Imposes 50% Oil Windfall Tax and 10-Cent Barrel Fee to Fund FEMA Disaster Resilience Grants

This bill, the National Resilience and Recovery Fund Act, is essentially a massive financial swap: it creates a dedicated trust fund to pay for Federal Emergency Management Agency (FEMA) disaster mitigation programs, and it pays for that fund by imposing several new, substantial taxes on the oil and gas industry. The goal is to move the country from reacting to disasters to actively preparing for them, but the cost of that preparation is borne almost entirely by energy producers.

The National Resilience and Recovery Fund (NRRF)

First, the good news for anyone living in a disaster-prone area—which, let’s be honest, is increasingly everyone. Section 2 establishes the National Resilience and Recovery Fund (NRRF) within the Treasury. This fund will exclusively finance FEMA’s pre-disaster grant programs, including the Hazard Mitigation Grant Program (HMGP), the Building Resilient Infrastructure and Communities (BRIC) program, and the Flood Mitigation Assistance program. This means dedicated, predictable funding for projects like seawalls, updated infrastructure, and hardening community assets before a hurricane, flood, or wildfire hits. The effective date for this new funding structure is January 1, 2025.

Expanding the Tax Net: Tar Sands and the 10-Cent Fee

To fill the NRRF piggy bank, the bill starts by expanding the existing crude oil excise tax. Section 3 clarifies that the term “crude oil” for tax purposes now explicitly includes things like tar sands, oil derived from kerogen-bearing sources, and bitumen. This is a big deal because it means previously untaxed or ambiguously taxed feedstocks are now squarely in the crosshairs. Furthermore, Section 4 adds a new 10-cent per barrel excise tax, specifically called the “National Resilience and Recovery Fund financing rate,” which applies to all crude oil and imported petroleum products starting in 2025. Think of it as a resilience surcharge on every barrel.

Critically, Section 3 also grants the Treasury Secretary significant new regulatory power to classify other fuel feedstocks or finished products as “crude oil” subject to this tax if they are transported commercially and pose a “significant risk of hazard if discharged.” This is a broad mandate that could potentially expand the tax base well beyond traditional crude oil, creating uncertainty for companies dealing in various fuel products.

The Big Hit: The 50% Windfall Profits Tax

The most significant financial element is the new 50% windfall profits tax outlined in Section 5. This tax targets only the largest players—those “covered taxpayers” who extract or import more than 300,000 barrels of crude oil daily (based on 2023 or current quarter figures). If you run a small oil field or a regional refinery, you are likely exempt. If you are a multinational giant, you are in scope.

Here is how the tax works: If the average price of Brent crude oil in a given quarter exceeds the average price from the historical period of January 1, 2015, through December 31, 2019 (with some inflation adjustment), the covered taxpayer pays a 50% tax on the difference. This is designed to capture extraordinary profits when oil prices spike far above the historical norm. For example, if the baseline historical price is $60 and the current price is $100, the $40 difference is considered a windfall, and the company pays 50% of that ($20) per barrel in tax. This tax kicks in for oil removed or entered after December 31, 2024.

Targeting the Gulf of Mexico: The 13% Severance Tax

Finally, Section 6 imposes a new 13% severance tax on the removal price of crude oil and natural gas produced from the Outer Continental Shelf (OCS) in the Gulf of Mexico. This is a direct tax on the value of resources extracted from federal submerged lands, paid by the producer. There is a credit available against this tax for any federal royalties already paid, which softens the blow somewhat. However, this still represents a substantial new operational cost for offshore producers in that region, effective after December 31, 2024.

Real-World Impact: Who Pays and Who Benefits?

This bill directly benefits communities who need better disaster preparedness. If you live in a coastal town or on a flood plain, this dedicated funding stream for resilience projects is a major win. For the average person, this means the infrastructure you rely on—roads, hospitals, power grids—may become more robust, potentially reducing the massive economic and personal toll of future disasters.

However, the bill places a heavy, targeted tax burden on large energy companies and Gulf OCS producers. While the intent is to fund resilience using profits derived from fossil fuels, the perennial concern is whether these new costs—the 10-cent fee, the 13% severance tax, and the potentially massive windfall tax—will be absorbed by the producers or passed down the supply chain to consumers. If these taxes lead to higher operational costs or reduced investment in domestic energy production, the ultimate result could be higher prices at the pump or for natural gas, potentially hitting your household budget in 2025 and beyond.