There are a lot of perks for Big Oil in Democrats' new bill, even though it's being touted as the biggest climate investment in US history

There are a lot of perks for Big Oil in Democrats' new bill, even though it's being touted as the biggest climate investment in US history
Sens. Joe Manchin of West Virginia and Ron Wyden before a 2018 Senate committee hearing.Tom Williams/CQ Roll Call
  • The Inflation Reduction Act includes $369 billion in energy and climate spending.
  • But the bill also includes some "Easter eggs" for the fossil fuel industry.

Oil companies are on board with Democrats' new bill, which might be surprising as it's been touted as the biggest climate investment in US history.

"There are some things in there that are helpful to our business," Rich Walsh, senior vice president and general counsel at the US oil refiner Valero, one of the country's largest fuel refiners, said in an earnings call the day after the bill was announced.

He's referring to some "Easter eggs" tucked into the Inflation Reduction Act. If the IRA is passed by the House this week and signed into law by Biden, it would allocate $500 million to the expansion of biofuel infrastructure, require the Department of the Interior to set aside at least 2 million acres per year for onshore oil and gas lease sales, provide drillers access to federal waters in Alaska and the Gulf of Mexico, and ease some federal rules that the industry has argued are limiting fossil fuel production.

"This bill supports carbon management, hydrogen, geothermal energy, offshore energy, and some key pipelines, all of which are good for the oil and gas industry," says Michael Webber, an energy resources professor at the University of Texas. "The coal industry benefits from investments in labor transitions. The most important factor though might be expedited permitting for projects."

The IRA could 'prolong the usage of fossil fuels'

The bill also provides substantial tax credits for carbon capture and direct air capture technologies, which enable carbon dioxide to be captured and stored underground and even extracted from the atmosphere. This could be a $4 trillion industry by 2050, and given that many fossil fuel companies have made significant investments in these technologies — including Occidental Petroleum, Exxon Mobil, and Chevron — they could be the ones to reap the rewards.


Climate activists would likely be able to stomach the fossil fuel industry profiting off of carbon capture technology if it meant making significant progress towards climate goals. Some are skeptical, however.

Per a 2021 report from climate researchers at Friends of the Earth Scotland and Global Witness, 81% of carbon captured to date has been used to increase oil production. By pumping carbon dioxide into oil wells, drillers can access oil that would otherwise have been inaccessible. Denbury for instance, is a US company whose business model revolves around this practice. In California, officials are debating whether carbon capture's emissions reductions would justify the increase in oil production that might result if the state embraces the technology.

"Carbon management technologies are a way to clean up the emissions from fossil fuel use," says the University of Texas's Webber. "Therefore, support for carbon technologies is a way to prolong the usage of fossil fuels. That is good for fossil fuel companies, but many environmentalists don't want fossil fuel use at all, even if its emissions are captured."

The Friends of the Earth and Global Witness researchers are among the skeptics of the underlying technology as well, who argue it's too expensive, too difficult to implement at scale, and doesn't capture sufficient levels of carbon.

"The technology still faces many barriers, would only start to deliver too late, would have to be deployed on a massive scale at a scarcely credible rate and has a history of over-promising and under-delivering," the researchers wrote in the same 2021 report.


Given these concessions to the fossil fuel industry and the tax credits for carbon capture technology, some climate activists certainly have a bone to pick with the IRA.

"Climate investments should not be handcuffed to corporate subsidies for fossil fuel development and unproven technologies that will poison our communities for decades," Juan Jhong-Chung from the Michigan Environmental Justice Coalition, told Mother Jones.

Two measures in the IRA — the 15% minimum tax on companies earning over $1 billion and a new fee on methane emissions — sound like bad news for the fossil fuel industry. Many of these companies, however, are already meeting this tax threshold and have been taking steps to limit their methane emissions. And, the fee would only apply to companies emitting at least 25,000 metric tons of carbon dioxide equivalent annually, which, per a Congressional Research Service analysis, would account for only 40% of the industry's total emissions.

Climate benefits of the IRA 'far outweigh the fossil fuel provisions'

But while the Inflation Reduction Act might not be quite the bill climate activists have dreamed of, it's being widely regarded as a major step towards a clean energy future — which is ultimately bad news for the fossil fuel industry, particularly smaller independent oil producers.

Compared to their larger counterparts, these companies, which account for 83% of America's oil production, are less invested in renewables and carbon capture, will be more exposed to the new methane fee, and have fewer resources to navigate their rapidly evolving business environment.


"There'll be more pressure on that small mom-and-pop independent,"Pioneer CEO Scott Sheffield told Bloomberg Television on Tuesday. "It may put a lot of them out of business."

Overall, the IRA is likely to be unfavorable to the broader fossil fuel industry in the long run, despite the perks. "On the whole, they certainly would have preferred for this bill not to have passed," says Joshua Basseches, an assistant professor of public policy and environmental studies at Tulane University." It certainly put their lobbyists on defense rather than offense, but certain key concessions to certain segments of the industry do appear to have softened opposition."

The $369 billion climate and energy package includes tax credits for electric vehicles and rebates for energy efficient home improvements like electric heat pumps and solar panels. Per Democrats, the bill's measures would lower greenhouse gas emissions by 40% by 2030 relative to 2005 levels, just short of President Biden's goal of a 50% reduction. While the $369 billion falls short of the $550 billion in climate spending proposed in last year's Build Back Better Act, the investment is roughly four times what was made in the 2009 American Recovery and Reinvestment Act.

Not only is the climate package projected to put a substantial dent in greenhouse gas emissions, but it would signal to the rest of the world that the US is committed to taking on climate change.

"The provisions incentivizing green energy far outweigh the fossil fuel-friendly provisions," says Basseches.


And crucially, without these concessions to the fossil fuel industry, the legislation might not have made it to the finish line at all.