At the time The Inflation Reduction Act was passed it was clear that one of the major political opponents was the fossil fuel and oil industries. Over the last few months, however, the rhetoric has changed and the new refrain has come that “Big Oil urges Trump not to gut Biden’s climate law”, so what changed? 

As usual with laws and sausages, it’s better not to see exactly how they get made. When the IRA was being debated, the American Petroleum Institute and almost 60 other trade groups in the natural gas and oil industry sent a letter to Congress, urging lawmakers to reconsider its regulatory policies, but said nothing about the subsidies the Act provided. Lobbyists were especially concerned about the tax imposed on crude oil and petroleum products, new constraints on oil companies’ production, and the failure to address fossil fuel permitting. Major conglomerates argued that the provisions of the act were an attack on the oil industry, and especially objected to increased regulations on tailpipe emissions and regulations on methane emissions from oil and gas.

But when all was said and done, the final bill included $369 billion in tax breaks that the industry has taken advantage of — and doesn’t wish to lose.

The claimed purpose of the Inflation Reduction Act was (as the name suggests) reducing inflation through a mixture of policies. But that mix grew to include a veritable smorgasbord of pork for many industries, especially for “cleaner” energy, and initially included regulatory provisions hostile to the fossil fuel industry. In total, the Joint Committee on Taxation estimates these handouts come at a cost of almost $633 billion, and it became clear over time that major fossil fuel companies would get access to at least some of this pork through their “clean energy” focused subsidiaries. 

Oil companies’ losses to regulatory costs could be offset by some of the tax cuts, but getting them required costly investments in energy types and technology favored by the Biden Administration and its backers. 

Indeed as late as July of this year Dan Eberhart, CEO of Canary, an oil field services company, said “Trump’s energy policies — less regulation and favoring fossil fuels — are better for business and the economy.” Noticeably, even companies who felt “targeted” by the bill’s regulations didn’t object to the large subsidies their “clean energy” focused subsidiaries could receive. 

In late 2024, that balance of interests necessitated a major change in rhetoric. Big Oil shifted from strongly rejecting the IRA to trying to protect at least parts of it from being eliminated by the new administration. 

To capture the IRA’s generous subsidies, Exxon Mobil pledged to invest $15 billion to reduce its carbon emissions. Chevron invested $45 million in carbon capture in April of this year, one of the favored practices for which the bill offered tax breaks. ExxonMobil acquired Denbury Inc, a carbon-capture-focused company, for almost $5 billion in July 2023.

Such actions are easily predicted by Public Choice economics, which acknowledges that self-interest drives not only actions in the market but also actions in politics. Business decisions that don’t make financial sense on their own can instead be paid for with other people’s money in the form of subsidies. Suddenly, what didn’t make financial sense for a company before becomes a goal, as political and financial priorities shift toward harvesting the full amount of those subsidies for as long as possible. Even a company that didn’t want to may feel pressured to game the system, as its competitors offset regulatory losses by raking in public dollars. 

In the wake of the IRA, the oil industry has invested at least $128 billion in renewable fuel, carbon capture, and similar technologies, and expects a large return on those projects in the form of tax credits and publicly funded subsidies. Without the subsidies, those investments make little financial sense and ultimately leave the oil companies holding the bag. As a result, they’ve joined the voices to protect at least some of the IRA’s provisions. 

None of this comes as a surprise to those fluent in public choice economics. Naturally, individuals in politics and in the market people and companies follow their own self-interest. But unlike in markets, the machinations of politics (the expectation that other people will pay the costs) lead to riskier decisions. Resources are directed toward harvesting subsidies rather than producing value for consumers. That is a very expensive proposition for taxpayers.