Fossil Fuel Policy

U.S. fossil fuel policy — the complex of tax incentives, regulatory frameworks, leasing programs, and trade policies governing the production and use of oil, natural gas, and coal — positions the United States as the world's largest oil and natural gas producer (surpassing Saudi Arabia and Russia), with domestic output of approximately 13 million barrels/day of oil and 100+ Bcf/day of natural gas that powers homes, factories, and vehicles while generating hundreds of billions in economic activity. Federal fossil fuel policy operates through multiple channels: production incentives in the tax code including the intangible drilling cost deduction (26 U.S.C. § 263(c)), the percentage depletion allowance (26 U.S.C. § 613), and carbon capture credits (26 U.S.C. § 45Q); federal leasing programs on public lands and offshore (Bureau of Land Management and Bureau of Ocean Energy Management); pipeline and export certification (FERC and Department of Energy); and environmental regulation (EPA Clean Air Act and Clean Water Act standards). The fossil fuel sector has been at the center of America's sharpest policy divide: the Biden administration curtailed new federal oil and gas leasing, prioritized climate over production, and tried (with partial success) to accelerate the energy transition. The Trump administration's "energy dominance" agenda reversed these priorities — expediting LNG export approvals, opening new offshore leasing, rescinding Biden-era environmental restrictions, and withdrawing from the Paris Agreement again. The IRA's § 45Q carbon capture credit represents an attempt to reduce the climate impact of fossil fuel production rather than curtail it — a market-based approach that has attracted bipartisan interest even as the broader energy transition debate continues.

Current Law (2026)

U.S. fossil fuel policy encompasses production incentives, environmental regulation, and energy security measures affecting oil, gas, and coal.

Key Numbers

• U.S. oil production: approximately 13.3 million barrels/day in 2024 — the world's highest ever national output, surpassing both Saudi Arabia and Russia; Texas (Permian Basin) accounts for roughly 6 million bbl/day of that total; the U.S. went from a net oil importer in 2017 to a net petroleum product exporter
• U.S. natural gas production: approximately 105 Bcf/day — also a world record; the U.S. became the world's largest LNG exporter in 2023, with export capacity of approximately 14-15 Bcf/day flowing to Europe (which displaced Russian pipeline gas after the 2022 invasion of Ukraine) and Asia
• Intangible drilling cost deduction (26 U.S.C. § 263(c)): estimated annual federal revenue cost of approximately $0.9-1.4 billion/year; allows oil and gas producers to immediately deduct 100% of drilling costs (labor, chemicals, mud, surveying) that have no salvage value — rather than depreciating over the well's life; one of the longest-standing fossil fuel tax preferences (in continuous existence since 1913)
• Percentage depletion allowance (26 U.S.C. § 613): independent oil and gas producers can deduct 15% of gross revenue from a property regardless of actual extraction cost; oil shale qualifies at 22%; major integrated oil companies (ExxonMobil, Chevron, etc.) were excluded from percentage depletion in 1975, so the benefit flows primarily to small and mid-sized independents; estimated annual federal revenue cost approximately $1.5-2 billion/year
• 45Q carbon capture credit: $85/metric ton for CO2 permanently sequestered underground; $60/ton for CO2 used in enhanced oil recovery or other industrial applications; the Inflation Reduction Act (2022) raised both figures and extended the credit's availability — making carbon capture economics marginally more viable at current natural gas prices
• Federal onshore oil and gas royalty rate: 16.67% of gross proceeds — raised from 12.5% by the Inflation Reduction Act for new leases; states receive 50% of onshore royalties from federal land within their borders; total federal oil and gas royalty, rental, and bonus revenue runs approximately $4-6 billion/year in active years
• U.S. coal employment: approximately 42,000 mine workers (2023) — down from approximately 250,000 in 1980 and roughly 90,000 in 2012; coal production has declined from 1.2 billion short tons/year at its 2008 peak to approximately 500 million tons/year in 2024 as natural gas and renewables have displaced coal in power generation
• Strategic Petroleum Reserve: approximately 370 million barrels as of early 2026 — below the 400+ million pre-2022 level after the Biden administration released ~180 million barrels in 2022 to counter post-Ukraine invasion oil price spikes; refilling the SPR has been a stated priority of the Trump administration

Legal Authority

• 26 U.S.C. § 45Q — Carbon oxide sequestration credit (credit for capture and storage/utilization of qualified carbon oxide)
• 26 U.S.C. § 45 — Renewable electricity production credit (production tax credit for electricity from wind, biomass, geothermal, and other qualifying sources)
• 26 U.S.C. § 263(c) — Intangible drilling and development costs (deduction for intangible costs of drilling oil/gas wells)
• 26 U.S.C. § 613 — Percentage depletion (allowance for depletion of oil, gas, and mineral deposits)

How It Affects You

Implementing Regulations

• 10 CFR Parts 429–435 — Energy conservation standards (test procedures, energy efficiency standards for commercial/residential equipment, federal building energy performance)
• 10 CFR Part 490 — Alternative fuel transportation program (fleet requirements, credits, exemptions)
• 10 CFR Part 212 — Mandatory petroleum allocation regulations
• 30 CFR Parts 200–299 — Bureau of Safety and Environmental Enforcement (BSEE) (offshore oil and gas operations safety, well control, pollution prevention)
• 43 CFR Parts 3100–3170 — BLM oil and gas leasing (onshore leasing, royalty management, drilling permits, site security)

Pending Legislation (119th Congress)

• S 1252 (Sen. Tillis, R-NC) — Renewable Natural Gas Incentive Act of 2025. Would create a $1-per-gallon federal credit for renewable natural gas used as vehicle, marine, or aviation fuel. Status: Introduced.
• HR 1080 (Rep. Miller, R-IL) — No Solar Panels on Fertile Farmland Act of 2025. Removes federal clean energy tax credits for solar and other qualifying energy property placed on prime farmland. Status: Introduced.
• HR 2301 (Rep. Levin, D-CA) — Sets a 60-unit renewable target for Federal land, creates Priority Areas, and speeds permitting. Status: In committee.

Recent Developments

• EPA rescinds 2009 GHG Endangerment Finding (February 2026): In a sweeping regulatory reversal, EPA rescinded the 2009 Greenhouse Gas Endangerment Finding — the legal bedrock of all federal climate regulation under the Clean Air Act — and repealed all vehicle GHG emission standards. The Endangerment Finding, affirmed multiple times by courts since Massachusetts v. EPA (2007), was the statutory basis for tailpipe emission standards, power plant rules, and EPA's authority to regulate greenhouse gases at all. Environmental groups immediately filed litigation; the legal battle over the rescission is expected to reach the Supreme Court. If the rescission survives, EPA would lose the primary federal tool for climate regulation without new statutory authority from Congress.
• CAFE standards proposed relaxation and methane delay (2025-2026): NHTSA proposed "SAFE Vehicles Rule III" in December 2025 to recalibrate Corporate Average Fuel Economy standards for model years 2022-2031, potentially relaxing fuel efficiency requirements for passenger cars and light trucks from the Biden-era targets. In parallel, EPA extended compliance deadlines for oil and natural gas sector methane emission standards — delaying requirements that would have required operators to monitor and reduce methane leaks from existing well sites. The IRA's $900/ton methane fee for excess emissions, effective 2025, remains in place as statutory law, creating tension between the fee structure and loosened EPA emission standards.
• "Energy Dominance" executive actions reshape leasing and export policy (2025): Trump's January 2025 executive orders reversed Biden-era offshore drilling moratoriums, directed Interior to restart coal lease sales on federal lands, and directed Commerce and Energy to maximize LNG export approvals. The Department of Interior reinstated ANWR oil leasing and accelerated onshore drilling permitting on BLM lands. U.S. LNG export capacity is projected to double by 2030 from approximately 12 billion cubic feet/day to 24 BCF/day as new Gulf Coast terminals receive DOE authorization. Domestic natural gas production hit record highs in 2025 at approximately 105 BCF/day.
• "Ratepayer Protection Pledge" EO targets AI data center energy costs (March 2026): Trump signed an executive order directing federal agencies to protect residential and small business electricity ratepayers from cost subsidization by large industrial energy consumers — specifically referencing AI data centers and cryptocurrency mining facilities that have caused rapid load growth on regional grids. The EO directs FERC and DOE to review whether large load customers are paying their fair share of grid infrastructure costs. Utilities and data center operators are watching FERC rulemaking closely; large-load interconnection costs could increase substantially if FERC requires upfront cost allocation rather than socialized ratepayer recovery.