New Act Strips Fossil Fuel Tax Breaks, Hikes Royalties, and Imposes a 13% Gulf of Mexico Tax

The “End Polluter Welfare Act of 2025” is not subtle. This bill is a massive, comprehensive overhaul designed to dismantle the entire federal financial and regulatory support structure for the fossil fuel industry—coal, oil, and natural gas—in one fell swoop. Think of it as a policy earthquake that hits every corner of the energy sector, from the tax code to offshore drilling.

The Tax Code Gets a Total Overhaul

For decades, the oil, gas, and coal industries have relied on specific tax provisions that lower their operating costs. This bill targets nearly all of them, starting with the big deductions. If you’re an oil or gas company, you can no longer immediately write off your Intangible Drilling and Development Costs (IDCs). Instead, the bill mandates that you must amortize those costs over seven years (84 months) (Sec. 217). This isn't just paperwork; it’s a huge hit to cash flow, forcing companies to wait years to claim deductions they used to take upfront. Similarly, deductions for mining exploration and development costs are also stretched out to 84 months (Sec. 215, 216).

Beyond IDCs, the bill terminates the percentage depletion allowance for coal and oil shale (Sec. 206), ends the use of the advantageous Last-In, First-Out (LIFO) inventory accounting method for fossil fuel companies (Sec. 205), and terminates several key tax credits, including the credit for carbon oxide sequestration (Sec. 222). If you were counting on the 45Q credit to finance your carbon capture project, the door slams shut on any carbon captured after this bill becomes law. For energy workers, the excise tax that funds the Black Lung Disability Trust Fund is also increasing significantly (Sec. 218).

Uncle Sam Demands a Bigger Cut

If you drill on federal lands or waters, your rent is going up. The bill significantly increases the royalty rates the government charges for extracting resources. For coal, oil, and gas leases under the Mineral Leasing Act, the rate jumps from the current 12.5% to 18.75% (Sec. 103). Offshore, the minimum royalty rate for new leases is fixed at 18.75% for the next ten years (Sec. 104). This means less profit per barrel or ton for producers and more revenue for the U.S. Treasury.

But the biggest financial hit might be the new 13% tax imposed on the “removal price” of all crude oil and natural gas produced from the Outer Continental Shelf in the Gulf of Mexico (Sec. 212). This is a new federal severance tax, and while producers get credit for royalties already paid, it’s a substantial new cost center that will immediately impact the profitability of offshore operations.

Federal Funding is Now Off-Limits

The bill systematically blocks federal agencies from using taxpayer funds to support fossil fuel projects, domestically or internationally. The Department of Energy’s Loan Programs Office is prohibited from funding fossil fuel, carbon capture, or most hydrogen projects (Sec. 109). The USDA’s Rural Utility Service loan guarantees are banned for any project that uses fossil fuels (Sec. 113). Even international bodies like the Export-Import Bank and the Development Finance Corporation (DFC) are barred from financing fossil fuel activities (Sec. 114).

This means if you're a rural electric cooperative looking to upgrade a natural gas plant, or a company seeking federal financing to export LNG, that federal funding stream is gone. The bill also completely shuts down the Department of Energy’s Office of Fossil Energy and Carbon Management (Sec. 108), effectively ending federal research and development specifically focused on those resources.

Big Banks Face Bigger Bills for Cleanup

In a move that impacts the financial sector, the bill removes liability limits for certain offshore oil spills (Sec. 106). Previously, liability for offshore facilities was capped at $75 million, but that cap is now gone, exposing operators to potentially unlimited cleanup costs. Furthermore, the bill targets massive financial institutions (those with $250 billion or more in assets under management) by removing their protection from being held liable as “owners or operators” under the Superfund law (CERCLA) if they hold a security interest in a contaminated site (Sec. 116). This means if a mega-bank holds the mortgage on a hazardous site, they could be on the hook for the cleanup if they step in to manage it. For those managing hundreds of billions, this is a serious new environmental risk to weigh against their investments.