Here’s what HIVE AI had to say about “Are there new incentives for fossil fuel production or manufacturing under the One Big Beautiful Bill?”:

New Incentives for Fossil Fuel Production and Manufacturing Under the One Big Beautiful Bill

The One Big Beautiful Bill Act (OBBBA) represents a significant policy shift that includes several new incentives and enhancements for fossil fuel production and manufacturing activities. While the legislation is primarily known for phasing out clean energy tax credits, it simultaneously introduces and expands various provisions that benefit traditional energy sectors and domestic manufacturing operations.

Enhanced Manufacturing Investment Incentives

Advanced Manufacturing Investment Credit Enhancement

The OBBBA enhances the advanced manufacturing investment credit by increasing the credit rate from 25 percent to 35 percent One Big Beautiful Bill Act: Sec. 70308. Enhancement of advanced manufacturing investment credit . This enhancement applies to property placed in service after December 31, 2025 One Big Beautiful Bill Act: Sec. 70308. Enhancement of advanced manufacturing investment credit . This represents a substantial 10 percentage point increase in the investment tax credit available for advanced manufacturing facilities, making capital investments in manufacturing infrastructure significantly more attractive from a tax perspective.

The enhanced credit provides a powerful incentive for companies to invest in domestic manufacturing capabilities, including facilities that may support fossil fuel processing, refining, and related industrial activities. The increased credit rate effectively reduces the after-tax cost of qualifying manufacturing investments by providing a larger upfront tax benefit.

Special Depreciation Allowance for Qualified Production Property

The OBBBA created a new, temporary 100 percent deduction for investment in certain structures associated with tangible production of goods in the US. For qualifying structures beginning construction after January 19, 2025, and before January 1, 2029, and placed in service before January 1, 2031, 100 percent of the value of that investment can be deducted from taxable income Tax Foundation .

The term ‘qualified production activity’ means the manufacturing, production, or refining of a qualified product One Big Beautiful Bill Act: Sec. 70307. Special depreciation allowance for qualified production property . This provision specifically benefits facilities engaged in refining activities, which would include oil refineries and natural gas processing facilities. This provision improves the cost recovery for structures that usually have long depreciation lives, often up to 39 years to fully recapture the cost of the investment under current law. The new deduction for certain structures should boost investment while the provision is in place Tax Foundation .

The immediate expensing of production structures represents a dramatic improvement over the traditional 39-year depreciation schedule for nonresidential real property, providing substantial cash flow benefits and reducing the effective cost of capital for qualifying manufacturing and refining operations.

Expanded Carbon Capture and Sequestration Incentives

Carbon Oxide Sequestration Credit Expansion

The law expands the carbon oxide sequestration credit Tax Foundation , which is particularly beneficial for fossil fuel operations that implement carbon capture technology. Section 41119 of the Bipartisan Budget Act of 2018 (BBA), provides a credit for Carbon Dioxide – IRC 45Q provides a credit for carbon dioxide sequestration (carbon oxide refers to carbon dioxide, or other qualified carbon oxide). The credit is available to taxpayers that capture qualified carbon dioxide at a qualified facility – such as a coal power plant or manufacturing facility. Taxpayers dispose of the captured CO2 in a secure geological storage, or use it as an injectant in an enhanced oil or natural gas recovery project IRS IRM 21.7.4 Income Taxes/Information Returns .

This expansion is significant because it provides enhanced incentives for fossil fuel facilities to invest in carbon capture technology, effectively allowing them to continue operations while receiving tax benefits for environmental mitigation efforts. The credit can be particularly valuable for enhanced oil recovery projects, where captured CO2 is used to extract additional oil from existing wells.

Clean Fuel Production Credit Extension and Modifications

Extended Timeline with Domestic Content Requirements

The law extends the clean fuel production tax credit Tax Foundation , and Section 45Z(f)(1)(A) is amended by adding a new clause requiring that “such fuel is exclusively derived from a feedstock which was produced or grown in the United States, Mexico, or Canada” One Big Beautiful Bill Act: Sec. 70521. Extension and modification of clean fuel production credit . The amendments made by this subsection shall apply to transportation fuel produced after December 31, 2025 One Big Beautiful Bill Act: Sec. 70521. Extension and modification of clean fuel production credit .

This extension benefits domestic biofuel producers and creates incentives for North American feedstock production. The geographic restriction on feedstocks ensures that the credit supports domestic and regional agricultural and energy production, potentially benefiting fossil fuel-derived feedstocks that meet the qualifying criteria.

Prohibition on Negative Emission Rates

The law adds a new provision stating that “For purposes of this section, the emissions rate for a transportation fuel may not be less than zero” One Big Beautiful Bill Act: Sec. 70521. Extension and modification of clean fuel production credit . This modification prevents certain fuels from claiming artificially low or negative emission rates, which could level the playing field for traditional fuel sources that may have higher baseline emission rates.

Existing Fossil Fuel Tax Benefits Preserved

Enhanced Oil Recovery Credit Continuation

The OBBBA preserves existing fossil fuel tax benefits, including the enhanced oil recovery credit under IRC Section 43. The amount of the credit determined under subsection (a) for any taxable year shall be reduced by an amount which bears the same ratio to the amount of such credit as the amount by which the reference price for the calendar year preceding the calendar year in which the taxable year begins exceeds $28, bears to $6. For purposes of this subsection, the term “reference price” means, with respect to any calendar year, the reference price determined for such calendar year under section 45K(d)(2)(C) IRC § 43(b) .

This credit continues to provide incentives for enhanced oil recovery projects, which are capital-intensive operations that increase domestic oil production from existing wells.

Depletion Allowances and Production Incentives

The legislation maintains existing depletion allowances and other production-related tax benefits for oil, gas, and mineral extraction. Every taxpayer who claims depletion with respect to oil or gas produced by secondary or tertiary processes shall keep records of the secondary and tertiary processes applied and maintain records of the amount of production so resulting Treasury Reg. Treasury Regulation 1.613A-6 .

These provisions continue to support domestic energy production by allowing companies to recover their investment in natural resource extraction over time, effectively reducing the tax burden on domestic oil and gas production.

Manufacturing and Production Incentives

Permanent Bonus Depreciation Restoration

The OBBBA permanently restores 100% first-year bonus depreciation for the cost of qualified new and used assets acquired and placed into service after January 19, 2025. This provision, which was slated to phase down, now provides a consistent and powerful incentive for capital investment. Additionally, a new 100% depreciation deduction is introduced for “qualified production property” (nonresidential real property used in manufacturing) placed in service after July 4, 2025, and before 2031. This encourages significant capital expenditures, allowing businesses to reduce taxable income and improve cash flow, thereby freeing up funds for reinvestment and expansion.

This restoration particularly benefits energy-intensive manufacturing operations, including those that support fossil fuel production, processing, and distribution infrastructure.

Enhanced Section 179 Expensing Limits

The Act increases the maximum Section 179 expensing limit to $2.5 million for 2025, with a phase-out threshold beginning at $4 million for the same year. Both amounts will be adjusted annually for inflation. This enhancement provides businesses, especially small and mid-sized entities, greater flexibility to immediately deduct the cost of qualifying property, further stimulating investment in equipment and machinery.

These enhanced expensing limits benefit smaller oil and gas operators, drilling contractors, and service companies by allowing them to immediately deduct equipment purchases rather than depreciating them over multiple years.

Research and Development Incentives

Domestic R&E Expense Deductibility

The OBBBA permanently allows the immediate deduction of domestic Research and Experimentation (R&E) expenses in the year incurred, starting with the 2025 tax year. This reverses a prior requirement to amortize these costs. Furthermore, “small businesses” (those with average annual gross receipts of $31 million or less) can claim this deduction retroactively to 2022, with an option to accelerate remaining deductions over one or two years. This change is a significant boon for innovation, reducing the tax burden on companies investing in research and development and providing immediate cash flow benefits.

This provision benefits energy companies investing in new extraction technologies, refining processes, and efficiency improvements. The immediate deductibility of R&E expenses encourages continued innovation in fossil fuel production and processing technologies.

Fuel-Related Tax Provisions

Dyed Fuel Payment Provisions

The law includes provisions for “Dyed fuel” with amendments applying to “eligible indelibly dyed diesel fuel or kerosene removed on or after the date that is 180 days after the date of the enactment of this section” One Big Beautiful Bill Act: Sec. 70525. Allow for payments to certain individuals who dye fuel . This provision appears to address tax treatment of dyed fuels, which are typically used for off-highway purposes and receive preferential tax treatment.

Policy Context and Strategic Implications

Energy Policy Reorientation

The OBBBA signals a notable shift in federal energy policy. The Act begins phasing out numerous clean energy tax incentives that were established under the Biden-era Inflation Reduction Act. Concurrently, the OBBBA promotes fossil fuels over renewable energy, for instance, by postponing methane emission fees for 10 years and extending biofuels tax credits for four years. It also mandates quarterly onshore oil and gas lease sales by the Bureau of Land Management. This policy reorientation could have significant implications for the energy sector, climate goals, and the development of renewable energy technologies, potentially slowing the transition to a greener economy.

The legislation’s approach reflects a comprehensive strategy to support traditional energy sectors while reducing support for renewable alternatives. The combination of enhanced manufacturing credits, expanded carbon capture incentives, extended biofuel credits, and preserved traditional fossil fuel tax benefits creates a more favorable tax environment for conventional energy production and related manufacturing activities.

Compliance and Implementation Considerations

The provision will require clear guidance from the IRS and Treasury Department on qualifying structures to ensure the benefit is targeted consistent with the intent of the law Tax Foundation . Companies seeking to benefit from these new incentives should work closely with tax professionals to ensure proper qualification and compliance with the various requirements and restrictions.

The OBBBA’s fossil fuel and manufacturing incentives represent a significant shift in federal tax policy that favors domestic energy production and manufacturing. These provisions, combined with the phase-out of competing clean energy credits, create a more advantageous tax environment for traditional energy sectors and could influence long-term investment decisions in the energy industry.

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Are there new incentives for fossil fuel production or manufacturing under the One Big Beautiful Bill?