The fossil fuel sector is taking a victory lap following Senate passage Tuesday of high-profile legislation that also doubled down on Republican plans to slash clean energy tax breaks.
“This historic legislation will help usher in a new era of energy dominance by unlocking opportunities for investment, opening lease sales and expanding access to oil and natural gas development,” American Petroleum Institute President Mike Sommers said in a statement after the Senate passage. “We will continue to work with policymakers to get this final package to President Trump’s desk.”
The bill was revised just before passage to remove an excise tax on wind and solar projects and ease the timeline for phasing out credits for those industries, but clean energy advocates found little to cheer about.
“Despite limited improvements, this legislation undermines the very foundation of America’s manufacturing comeback and global energy leadership. If this bill becomes law, families will face higher electric bills, factories will shut down, Americans will lose their jobs, and our electric grid will grow weaker,” said Abigail Ross Hopper, president of the Solar Energy Industries Association.
Prior to the last minute changes, the climate change-focused data modeling group Energy Innovation projected the bill will slash power generation capacity 300 gigawatts by 2035, largely due to lost development of wind farms. That’s enough electricity to power hundreds of millions of homes.
The megabill’s passage sets up a potential fight with House Republican budget hawks. The Senate legislation could balloon the debt close to $4 trillion, according to some analysis. No House Democrats are expected to back the bill, meaning Speaker Mike Johnson of Louisiana is only able to lose a few votes from his caucus.
Rep. Chip Roy (R-Texas) called the revised clean energy language a “deal killer” on X, signaling the political obstacles facing the GOP.
The legislation comes amid a big push by the Trump administration to build out more fossil fuel infrastructure, primarily new natural gas plants and pipelines and mineral projects. Top administration officials say fossil fuels are needed to meet rising power demand driven by artificial intelligence projects and broad electrification of the U.S. economy.
As part of that push, EPA is rolling back power plant regulations and taking initial steps to repeal the basis for regulations on U.S. greenhouse gas emissions. Meanwhile, the departments of Energy and the Interior and the Federal Energy Regulatory Commission are advancing measures to pare environmental reviews for new infrastructure projects.
Energy Secretary Chris Wright has publicly championed the budget legislation, known as the “One Big Beautiful Bill Act,” arguing that the removal of wind and solar subsidies will make the U.S. energy system cheaper and more reliable.
“You never know if these energy sources will actually be able to produce electricity when you need it — because you don’t know if the sun will be shining or the wind blowing,” Wright said in a recent op-ed for the New York Post. “How valuable is a teammate who occasionally shows up for practice but is never there at game time?”
Fossil fuels
The Senate bill boosts the fossil fuel sector in ways that are absent in the House reconciliation bill passed in late May.
Companies that capture carbon and use it for enhanced oil recovery would receive an $85-per-ton maximum tax credit — the same rate given to companies that sequester the captured carbon geologically underground. The carbon capture tax credit, known as 45Q, is in place for projects that start construction before 2033, marking a rare instance of a tax credit with a long runway in the legislation.
Other tax provisions would give more breaks to oil and gas producers for “intangible drilling and development costs,” a term used to describe expenses for drilling systems but not the well itself. Sen. Elizabeth Warren (D-Mass.) has lobbied against the provision.
Together, the price tag for the new tax breaks is roughly $15 billion, according to an analysis by the Joint Committee on Taxation.
Melissa Simpson, president of the industry trade group Western Energy Alliance, praised the Senate bill.
“We’re witnessing summer heat waves, strains on the electrical grid, and families are traveling for the July Fourth holiday,” she said in a statement. “In DC, senators responded by moving a monumental bill that’ll unleash the energy we need. We’re especially pleased with provisions promoting oil and natural gas production on public lands.”
Fossil fuel opponents are up in arms.
“Anyone who said the Senate would be a moderating influence on this legislation is certainly looking quite naive right now,” said Lukas Shankar-Ross, deputy director of the climate and energy justice program at Friends of the Earth. “There were a lot of general corporate tax provisions in the House bill, but there were comparatively few carve-outs for the oil and gas industry itself.”
Meanwhile, the bill would also benefit the coal sector. Metallurgical coal, the type used to make steel and other industrial goods, would get a 2.5 percent tax break as part of the 45X advanced manufacturing tax credit if the Senate bill becomes law.
“This thing is a travesty,” Mike Williams, a senior fellow at the left-leaning Center for American Progress, said of the bill. “We are literally turning heel and walking away from all these clean energy technologies and doubling down on coal, let alone oil and gas.”
Williams said much of the metallurgical coal produced in the U.S. is likely to be sent to foreign steel producers like India, which is poised for big — and dirty — growth in the steel sector. Most of the steel produced in the U.S. is made with recycled steel, obviating the need for virgin metallurgical coal.
The Trump administration is seeking to bolster the U.S. coal sector with a wide variety of policies, including forcing utilities to keep coal plants operating past planned retirements.
Renewables, batteries and efficiency
The final Senate text on wind and solar was changed after a push from Sen. Lisa Murkowski (R-Alaska) and other Republican moderates. Along with removing the excise tax, the bill would allow projects to receive tax credits as long as they start construction by mid-2026 or are plugged into the grid by the end of 2027.
That was a shift from earlier language that focused on when projects only are placed in service rather than commencing construction. Clean energy groups had pushed for the latter to provide more certainty for developers. Under the plan, projects starting construction next year would have several more years to obtain tax credits.
Yet renewable supporters said the final text could lead to a slowdown of projects.
It’s less “cataclysmic” for clean energy, but is not a positive outcome for wind and solar, said Harry Godfrey, who leads federal affairs for Advanced Energy United.
A remaining barrier for renewables is “foreign entities of concern” (FEOC) language that requires developers to show they are not building projects with components from China and other specific countries. The final bill included some guidelines on how to comply, but additional clarification from the Treasury Department likely would be needed for projects starting construction next year, said Ben King, an analyst at Rhodium Group.
That could be challenging, considering it could take months for Treasury to develop rules. The agency could also interpret final language in a way that is more restrictive for certain industries.
The text “provides a lot of headwind” for wind and solar, said King, adding that it’s difficult for industries to set up complex tracking systems of their supply chains.
It took the Biden administration a long time to put out some tax credit rules, and those guidelines were less complicated than some of the FEOC language in the bill, he said.
While the final bill gave energy storage projects more time to obtain credits, it also made the restrictions on using components from China stricter than for some other industries. That could be problematic for grid batteries, which obtain the majority of their components from China and are often paired with solar projects, said Derrick Flakoll, senior policy associate for North America at BloombergNEF.
“To the degree that storage kind of subsidizes wind and solar, that raises issues for economic viability of those co-located projects,” Flakoll said.
There also are restrictions on Chinese components being used in manufacturing projects. Flakoll said that could be more challenging for solar than wind, which has a more localized supply chain.
If the language becomes law, wind and solar projects will still get built since they are economically competitive in many locations, but “it is going to be hard to keep pace” with rising electricity demand, Flakoll said.
Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition, said the timelines in the Senate bill would “kill American manufacturing.”
The group supported the foreign entity language. But because of the 2026 and 2027 timelines, the credit would not be relevant for many projects, Carr said. Solar projects after 2027 also would not be able to access what is known as the “domestic content adder,” which makes the credit 10 percent more lucrative if components are produced in the U.S.
That language in the existing tax credit has been critical for domestic solar manufacturers, Carr said. “It has been working to shape the market,” he said. Domestic production of solar panels has surged sixfold since 2023.
With credits being phased out by 2027, many developers will turn to Chinese-made components, he predicted.
The bill essentially blocks utility-scale projects from receiving the credit after June of next year, since it typically takes several years for larger projects to come online, Carr added. That means many projects would need to have already started construction to get online by 2027, he said, calling the text a “retroactive repeal.”
Another industry that is fuming is energy efficiency. The bill would eliminate several tax credits, including one that helps homeowners make upgrades such as adding insulation or more efficient heating and cooling systems. It also would cut back on credits for builders to construct efficient homes and apartments.
“Taking away incentives for energy-saving improvements would raise monthly bills for families and businesses. It will only exacerbate the growing strain on the electric grid,” said Steven Nadel, executive director for the American Council for an Energy-Efficient Economy.
Outside of wind and solar, nuclear and geothermal projects have a looser timeline and can claim credits if they commence construction before the end of 2033, but they also would have to meet the foreign entity rules.
Hydrogen extension
Meanwhile, the Senate is throwing a lifeline to hydrogen energy.
The House bill passed in May and the initial Senate Finance Committee unveiled last month both killed a clean hydrogen tax credit known as 45V for projects that start construction after next year.
Now, the Senate legislation extends that cutoff to 2028. It’s a big win for an emerging sector with tight margins — but the upper chamber still cuts the credit short five years compared to current law.
Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, praised Sens. Shelley Moore Capito (R-W.Va.) and Bill Cassidy (R-La.) for the extension. Wolak said the industry and the Department of Energy’s hydrogen hubs are viewing the language positively.
“I see an industry now assessing their plans … so that they can come in under the wire,” Wolak said.
The fate of the hubs, backed by $8 billion from the infrastructure law, is uncertain as DOE’s Wright conducts a review of programs.
The prospects for “green” hydrogen, which is made with renewables, also are murky, considering the other tax provisions in the bill. Amid the uncertainty, some U.S. companies have been looking to sell green hydrogen electrolyzers in Europe.
It’s going to be a challenge for green hydrogen to put “all the pieces together given the cost of renewables will be higher,” said Wolak about the U.S. market. That could give a boost to “blue” hydrogen made with fossil fuels tied to carbon capture.
That form of hydrogen has been criticized by environmentalists who say it won’t cut emissions.
Shankar-Ross of Friends of the Earth said the Trump administration is likely to retool the credit to benefit fossil fuel-based hydrogen production. Nearly all U.S.-made hydrogen is produced from fossil fuels.
“It’s clear this was a lobbying priority for the oil and gas industry,” he said. “It would probably be better for the hydrogen credit to be repealed than to fall into the hands of the Trump administration.”
Wolak said he didn’t see likely changes in the hydrogen language in the House, considering other issues may raise higher in the minds of lawmakers.
“I think we come out of this in pretty good shape,” he said.
