The current energy tax subsidy landscape is shaped by centuries-old giveaways for traditional fuels to, most recently, two dozen tax provisions modified or created in 2022 that aim to incentivize the deployment of clean energy—from energy production to clean vehicles.
The tax code includes provisions that allow energy producers more favorable treatment of income and properties, such as the long-standing policy that enables oil and gas producers to fully expense (deduct) costs like wages, fuel, and drilling site preparations. It also offers billions of dollars in tax credits for energy production, investments in energy infrastructure, and purchases that improve energy efficiency.
Over time, subsidies have been added or expanded in the code without examining their cost, necessity, or effectiveness, often working at cross-purpose with each other. According to the Joint Committee on Taxation (JCT), taxpayers are estimated to spend more than $280 billion between FY2022 and 2031 on energy tax subsidies. With such a high cost, it’s worth asking whether these subsidies are achieving their goals.
Tax subsidies may actively undermine taxpayers by subsidizing behaviors that create additional long-term liabilities in the form of market distortions, extreme weather from climate change, and increased food and energy costs for consumers. Some subsidies may cost more than any potential benefit by incentivizing behaviors with unproven/questionable benefits or provide positive returns for taxpayers but not be the best vehicle for the intended outcome.
Strong oversight and transparency are essential to ensure federal energy tax subsidies deliver value for taxpayers without unnecessary waste.
The chart below shows some of the prominent energy subsidies in the U.S. tax code:
| Tax Credit | U.S. Code | Years in Effect | FY22-31 score (JCT), in billions | Details/Description |
| Expensing of Intangible Drilling Costs | 26 U.S.C. §263(c) | 1913 – | $10.486 | Enables oil and gas producers to fully expense (deduct) costs like wages, fuel, and drilling site preparations |
| Percentage Depletion Allowance for Oil and Gas | 26 U.S. Code §613 | 1926 – | $9.172 | Allows independent oil and gas producers to deduct 15% of their revenue before taxes are calculated instead of the cost of resources depleted in a given year. |
| Percentage Depletion Allowance for Certain Coal Producers | 26 U.S. Code §613 | 1932 – | Allows certain coal producers to deduct 10% of their revenue before taxes are calculated instead of the cost of resources depleted in a given year. | |
| Capital Gains Tax Treatment for Royalties on Coal and Lignite | 1951 – | $0.455 | Gains from the sale of the rights to lignite and coal held by the original owner for more than one year are treated as long-term capital gains, rather than ordinary income, thus allowing them to be taxed at a lower rate. | |
| Expensing for Mine Exploration and Development Costs | 26 U.S.C. §617(a) | 1951 / 1966 – | $0.91 | Companies can expense the costs of ascertaining the location, quality, or quantity of a deposit, as well as the costs of development for extraction once the deposit is discovered. This immediate expensing is a subsidy because it deviates from the standard cost depletion method, which typically spreads the cost of tangible assets over their useful lives. |
| Accelerated Amortization of Air Pollution Control Equipment | 26 U.S. Code § 169 | 1969 – | $0.901 | Certain types of air pollution control facilities can be deducted over either five years or seven years. |
| Renewable electricity investment tax credit (ITC) | 26 U.S.C. §48 | 1978 – 2024 | $14 | Tax credit for investments in solar, geothermal, fuel cell, microturbine, combined heat and power, wind, and waste energy recovery property; plus new provisions for energy storage technology, biogas, and microgrid controllers. |
| Expensing of Tertiary Injectants | 26 U.S. Code §193 | 1980 – | Operators can deduct expenses related to tertiary injectants—such as CO2—in the year they are incurred. This immediate expensing is a subsidy because it deviates from the standard cost depletion method, which typically spreads the cost of tangible assets over their useful lives. | |
| Deductions for Foreign Tax on Mineral income – Dual Capacity | 26 U.S.C. §907 | 1983 – | $1.429 | Allows U.S.-based corporations to receive a credit against their U.S. tax liability for the taxes they pay to foreign countries on income earned abroad |
| Master Limited Partnerships (MLPs) | 26 U.S.C. §7704 | 1986 – | $1.027 | Publicly traded partnerships, or “master limited partnerships” (MLPs), can avoid corporate income tax if at least 90% of their income comes from qualifying sources, like oil and gas production and transportation |
| Exemption to Passive Loss Limitations for Oil and Gas | 26 U.S.C. §469 | 1986 – | $0.086 | Normally, taxpayers can deduct losses from passive activities (any activity in which a taxpayer has an economic interest but does not “materially participate”) up to but not over their total amount of passive income. Working interests in oil or gas wells are exempt from the passive loss limitation. |
| Cost Recovery for Qualified Facilities, Qualified Property, and Energy Storage Technology | 26 U.S.C. §168(e)(3)(B) | 1986 – | $0.62 | Energy properties that are eligible for the 45Y and 48E tax credit may be treated as 5-year property. |
| Enhanced Oil Recovery Credit | 26 USC 43 | 1991 – | $7.80 | Tax credit of 15% of qualified EOR costs incurred domestically when oil prices drop below a certain level. This credit was available in 2016, 2017, 2018, and 2021. |
| Oil Spill Liability Trust Fund (OSLTF) and Superfund Excise Tax Exemption for Crude Oil derived from bitumen and kerogen-rich rock | 26 U.S. Code §4611 | 1991 – | $0.395 | Crudes such as those that are produced from bituminous deposits as well as kerogen-rich rock are not treated as crude oil or petroleum products for purposes of the OSTLF tax, which is $0.09/barrel, and Superfund, which is $0.164/barrel. |
| Renewable electricity production tax credit (PTC) | 26 U.S.C. §45(d) and §48(a)(5) | 1992 – 2024 | $51.10 | Tax credit for energy generated from closed- and open-loop biomass (latter includes livestock waste) facilities, landfill gas or trash facilities, qualified hydropower, marine and hydrokinetic, wind, and geothermal or solar energy. |
| Domestic Manufacturing Deduction for Hard Mineral Fossil Fuels | 26 U.S. Code §4199 | 2004 – | Coal companies are able to deduct up to 9% of the cost of domestic manufacturing activities from income taxes | |
| Manufacturing Tax Deduction for Oil and Gas Companies | IRC Sec 199 | 2004 – | Deduction for products are “manufactured, produced, or extracted in whole or in significant part in the United States.” | |
| Credit for Production from Marginal Wells | 26 USC 45I | 2005 – | $0.52 | Tax credit of $3 ($2005) per barrel of oil and $0.50 ($2005) per 1,000 cubic feet (mcf) of natural gas for oil and gas produced from wells with daily production of 25 barrels of oil or less. The credit was available in 2016, 2017, 2019, 2020, and 2021. |
| Qualifying Advanced Coal Project Credit | 26 U.S. Code §48A | 2005 – | Tax credit of 20% for integrated gasification combined cycle (IGCC) projects and 15% for other advanced coal-based projects that produce electricity | |
| Biodiesel tax credit | 26 U.S.C. §40A | 2005 – 2024 | $5.60 | Tax credit of $1/gallon for biomass-based diesel (biodiesel and renewable diesel) fuel, plus tax credit for alternative fuels |
| 7-Year MACRS for Certain Natural Gas Gathering Lines | 26 U.S.C. §168(e)(3)(C)(iv) | 2005 – | Certain natural gas gathering lines can be treated as 7-year property. | |
| 15-year MACRS for Certain Natural Gas Distribution Lines | 26 U.S.C. §168(e)(3)(E)(vi) | 2005 – | $0.3 | Natural gas distribution pipelines can be treated as 15-year property. |
| 15-year MACRS for Certain Electric Transmission Property | 26 U.S.C. §168(e)(3)(E)(v) | 2005 – | $0.3 | Certain Electric Transmission Property can be treated as 15-year property. |
| Amortization of Geological and Geophysical expenditures | 26 U.S. Code §167(h) | 2005 – | $1.985 | Expenses for the exploration or development of oil or gas are allowed as a deduction ratably over the 24-month period (as opposed to 7-year), except for major integrated oil companies |
| Nonbusiness Energy Property Credit | 26 U.S.C. §25C | 2006 – | $12.45 | Tax credit of 30% for individuals implementing “qualified energy efficiency improvements” and for certain “residential energy property expenditures” |
| Residential Energy Efficient Property Credit | 26 U.S.C. §25D | 2006 – | $22 | Tax credit of up to 30% for expenditures for certain solar electric, solar water heater, fuel cell, small wind, geothermal heat pump, and battery storage technologies. |
| Energy Efficient Commercial Buildings Deduction | 26 U.S.C. §179D | 2006 – | $0.36 | Tax deduction for the cost of energy efficient commercial building property, calculated by the size of the building. |
| New Energy Efficient Home Credit | 26 U.S.C. §45L | 2006 – | $2.04 | Tax credit for certain energy efficient homes, such as those meeting Energy Star requirements. |
| Alternative Fuel Refueling Property Credit | 26 U.S.C. §30C | 2006 – | $1.70 | Tax credit up to 30% for certain fueling equipment for 85% ethanol, natural gas, compressed or liquified natural gas, liquefied petroleum gas or hydrogen; 20% (or more) biodiesel; or electricity. |
| Tax Credit for Carbon Oxide Sequestration | 26 U.S.C. §45Q | 2008 – | $3.20 | Tax credit for carbon oxide captured and sequestered. |
| 10-year MACRS for Smart Electric Distribution Property | 26 U.S.C. §168(e)(3)(D) | 2008 – | $0.3 | Smart Electric Distribution Property can be treated as 10-year property. |
| Advanced Energy Project Credit | 26 U.S.C. §48C | 2009 – | $6.30 | Credit for eligible energy projects, including but not limited to industrial technology designed to reduce GHG emissions and “processing, refining, or recycling of critical materials.” |
| Clean Vehicle Credit | 26 U.S.C. §30D | 2009 – | $7.54 | Tax credit for certain electric vehicles. |
| Second Generation Biofuel Producer Tax Credit (Cellulosic tax credit) | 26 U.S.C. §40 | 2009 – 2021 | $0.54 | Tax credit of $1.01/gallon for production of cellulosic based biofuel. |
| Rules for Foreign Oil and Gas Extraction Income (FOGEI) and Foreign Oil Related Income (FORI) | 26 U.S.C. §951A | 2017 – | $84.781 | Exclusion of foreign oil-related income from taxable income for purposes of calculating GILTI and foreign tax credits. |
| Credit for Production of Clean Hydrogen | 26 U.S.C. §45V | 2022 – | $13.20 | Tax credit of up to $0.60/kg for production of hydrogen; credit varies by lifecycle GHG emissions rate, with lower emission hydrogen receiving higher credits |
| Credit for Previously-Owned Clean Vehicles | 26 U.S.C. §25E | 2023 – | $1.35 | Tax credit of 30% of the sale price of a previously owned electric vehicle but no more than $4,000. |
| Credit for Qualified Commercial Clean Vehicles | 26 U.S.C. §45W | 2023 – | $3.58 | Tax credit for certain electric and hydrogen powered fuel cell commercial vehicles. |
| Advanced Manufacturing Production Credit | 26 U.S.C. §45X | 2023 – | $30.60 | Tax credit for manufacturing components related to wind and solar, batteries, and minerals. |
| Sustainable Aviation Fuel Credit | 26 U.S.C. §40B | 2023 – 2024 | $0.49 | Tax credit of $1.25/gallon or more for aviation fuel meeting certain GHG emissions rates and other requirements |
| Zero-emission Nuclear Power Production Credit | 26 U.S.C. §45U | 2024 – | $30 | Tax credit for electricity produced at qualified nuclear power facilities. |
| Clean Electricity Investment Credit | 26 U.S.C. §48E | 2025 – | $50.90 | Phased tax credit for electricity investments “for which the anticipated GHG emissions rate is not greater than zero.” |
| Clean Electricity Production Credit | 26 U.S.C. §45Y | 2025 – | $11.20 | Phased tax credit for zero-emission electricity production. |
| Clean Fuel Production Credit | 26 USC 45Z | 2025-2027 | $3 | Tax credit of $0.20-$1.00/gallon for production of fuels with carbon intensity reductions; sustainable aviation fuel could receive credit of up to $1.75/gallon, with a minimum of $0.35/gallon. |
