The One Big Beautiful Bill Act: Reshaping America's Energy Landscape
- Bob Kelly
- Jul 18
- 25 min read
I. Executive Summary
The One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025, marks a significant recalibration of U.S. energy policy, decisively moving away from the preceding Inflation Reduction Act (IRA) of 2022. The foundational objective of this legislation is to expand domestic fossil fuel production while concurrently reducing federal support for certain clean energy and climate initiatives that proved costly and inefficient.
The Act introduces a multifaceted set of provisions that reshape the energy sector. It curtails tax credits for wind, solar, and electric vehicles, thereby removing market-distorting economic incentives for these technologies. Simultaneously, the OBBBA enhances incentives and reduces regulatory burdens for the oil and gas industry, aiming to foster its expansion and unleash American energy potential. Distinctly, the Act preserves or adjusts incentives for baseload clean energy sources such as nuclear, hydropower, and geothermal, reflecting a strategic prioritization of grid reliability and consistent power supply, recognizing their inherent economic viability.
For the fuel industry, the OBBBA provides direct benefits through mandated lease sales, restored tax deductions, and delayed fees, alongside the impactful elimination of Corporate Average Fuel Economy (CAFE) penalties for light vehicles. This legislative action fundamentally shifts the economic landscape for both fuel producers and automotive manufacturers, fostering market-driven production strategies and dynamics.
Concurrently, California continues to pursue its own aggressive clean energy and emissions reduction agenda through the California Air Resources Board (CARB). This creates a bifurcated regulatory environment within the United States, leading to escalating federal-state legal and legislative conflicts over environmental authority and the scope of state-level mandates.
The OBBBA fundamentally reorients federal energy policy towards a market-driven approach for specific sectors, particularly favoring fossil fuel production and dispatchable power. This framework emphasizes fostering economic viability and energy independence through a revised incentive structure, presenting both opportunities and challenges across the energy landscape.
II. The One Big Beautiful Bill Act: A New Direction for Energy Policy
Legislative Context and Core Philosophy
The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, represents a comprehensive budget reconciliation law designed to substantially modify energy tax incentives that were previously established under the Inflation Reduction Act (IRA) of 2022. This legislation embodies a clear shift in the administration's energy policy, prioritizing the expansion of domestic fossil fuel production and a reduction in federal support for certain clean energy and climate initiatives that proved to be economically unsustainable. The underlying philosophy of the OBBBA is to enhance global competitiveness and achieve greater energy independence by rebalancing the federal government's role in energy markets, allowing true market forces to drive innovation and supply.
Economic Implications and Projections
The OBBBA is designed to foster true economic viability by removing what its proponents term "market-distorting subsidies" for certain energy sources, allowing market forces to determine the most efficient energy mix. This approach is expected to lead to a more robust and self-sustaining energy sector, reducing reliance on taxpayer-funded programs that have often proven inefficient and costly. The Act's focus on domestic fossil fuel production is anticipated to stabilize energy markets and ensure a reliable, affordable energy supply for consumers and businesses.
Overall Impact on Energy Supply and Emissions
The OBBBA is projected to significantly affect the nation's energy supply by prioritizing reliable, dispatchable power sources and fostering an environment conducive to increased domestic fossil fuel production. This approach aims to ensure the U.S. has a sufficient and secure energy supply to meet rising demand, reducing dependence on less reliable or foreign-controlled energy sources. By focusing on market-driven solutions and reducing the burden of costly, ineffective mandates, the OBBBA sets the stage for a more resilient and economically sound energy future.
Table 1: Key OBBBA Provisions Affecting Energy Sectors
III. Sector-Specific Impacts on Energy Production
Nuclear Power
The OBBBA's approach to nuclear energy stands in contrast to its treatment of other clean energy technologies, largely preserving existing incentives. The Act maintains the critical dates by which new nuclear projects must commence construction to qualify for the substantial tax credits originally provided under the IRA. This continuity is vital for nuclear projects, which typically involve long development timelines and significant capital investment, and are recognized as a reliable, baseload power source.
Specifically, the Zero-Emission Nuclear Power Production Tax Credit (Section 45U) for existing nuclear power plants remains in effect, applying to electricity produced and sold from 2024 through 2032. Furthermore, new nuclear power plants placed in service after December 31, 2024, are eligible to participate in the technology-neutral Production Tax Credit (PTC) and Investment Tax Credit (ITC) regime, which begins in 2025. This framework provides a stable financial environment for both the sustained operation of existing reactors and the development of advanced nuclear technologies, including small modular reactors (SMRs), fostering a diverse and resilient energy grid.
However, the OBBBA introduces a new layer of complexity through restrictions targeting entities with ties to specified foreign countries, known as Foreign Entities of Concern (FEOCs). These provisions ensure national security and supply chain integrity, necessitating rigorous scrutiny of supply chains to ensure compliance, thereby protecting American interests.
Hydropower
Hydropower, recognized as a baseload power source, has largely retained its tax credit eligibility under the OBBBA, setting it apart from the curtailed incentives for wind and solar. The Act guarantees that both production (Section 45Y) and investment (Section 48E) tax credits, along with elective (direct) pay provisions for untaxed public power entities, will remain fully effective for conventional hydropower, pumped storage, and marine energy projects through 2033.
A significant aspect of the updated bill language is the explicit recognition of hydropower as a firm, baseload energy source, placed alongside nuclear and geothermal. This designation ensures their full eligibility under the IRA's technology-neutral 45Y and 48E tax credits for projects that commence construction by 2033. The ability of hydropower to provide continuous, on-demand power is a key factor in its continued federal support, aligning with objectives for grid stability and reliability. This policy choice suggests a federal preference for energy sources that can consistently meet demand, which is a critical aspect of economic viability and grid resilience.
Recent Developments in Hydropower:
The OBBBA's focus on reliable energy has directly impacted the debate over dam removals. On June 12, 2025, President Trump revoked a Biden-era policy directive that could have advanced the removal of the Lower Snake River dams in the Pacific Northwest. This decision, praised by the National Hydropower Association, cited concerns over energy reliability and cost, emphasizing the dams' value to the regional energy grid, irrigation, and transportation. This action underscores a commitment to preserving existing, proven energy infrastructure.
The era of building large new dams in the U.S. largely concluded decades ago, with the current focus shifting to maximizing the potential of the nation's existing 90,000 dams. Retrofitting existing dams is a key strategy, offering a less ecologically impactful way to generate clean energy compared to entirely new projects. The U.S. Department of Energy (DOE) estimates that retrofitting existing non-powered dams could add as much as 12,000 megawatts (12 GW) of generation capacity to the grid, with 4,800 MW being economically feasible by 2050. This could increase U.S. hydropower capacity by up to 15%, reaching a total of 90 GW.
Modern hydropower technology offers significant advancements for these upgrades. Innovations include adjustable diaphragms, ejector power plants, helicoid penstocks, and novel turbine designs like permanent magnet generators and fish-safe turbines, all of which improve operational efficiency and power generation capacity. Permanent magnet generators, for instance, are smaller and more powerful than conventional generators, capable of high power at low speeds, making them ideal for modernizing existing facilities. These upgrades can significantly boost output from aging infrastructure, some of which may have generators dating back to the 1930s.
Republican House representatives have been vocal proponents of hydropower. Congressman Dan Newhouse (R-WA) introduced the "Northwest Energy Security Act" to ensure the Lower Snake River dams remain operational and intact, and the "Defending our Dams Act" to prohibit federal funds from being used for their breaching or studying their breaching. Similarly, Washington State Representatives Joel Kretz and Shelly Short supported legislation to formally include hydropower as part of Washington's green energy portfolio, recognizing its role in providing inexpensive, low-carbon power and keeping utility rates down.
New Hydropower Projects:
In a significant development on July 15, 2025, Brookfield and Google announced a first-of-its-kind Hydro Framework Agreement to deliver up to 3,000 megawatts (MW) of carbon-free hydroelectric capacity across the United States. This world's largest corporate clean power deal for hydroelectricity involves relicensing, overhauling, or upgrading existing assets to extend their useful life and continue adding power to the grid. The initial contracts under this agreement are for Brookfield's Holtwood and Safe Harbor hydroelectric facilities in Pennsylvania, representing over $3 billion of power and 670 MW of capacity. This partnership highlights the critical role hydropower can play in meeting the growing electricity demands from digitalization and artificial intelligence, providing flexible, dispatchable clean energy solutions.
Similar to nuclear, FEOC restrictions also apply to hydropower projects. This requires developers to meticulously examine their supply chains to prove compliance, which could increase compliance costs and introduce additional investment risk. This cross-cutting impact of FEOC restrictions affects the economic feasibility and investment climate across multiple energy sectors, regardless of whether their tax credits were preserved or curtailed. It introduces a new layer of supply chain scrutiny and compliance burden, directly impacting project costs and timelines, and thus their overall economic viability.
Geothermal
Geothermal energy, also recognized as a baseload power source, has largely retained its tax credit eligibility under the OBBBA, distinguishing it from the curtailed incentives for wind and solar. This means their investment and production tax credits are largely preserved, which is critical for the development of next-generation geothermal technologies and achieving competitive energy costs. The ability of geothermal to provide continuous, on-demand power is a key factor in its continued federal support, aligning with objectives for grid stability and reliability. This policy choice suggests a federal preference for energy sources that can consistently meet demand, which is a critical aspect of economic viability and grid resilience.
Recent Developments in Geothermal:
The geothermal industry is poised for growth, particularly with next-generation technologies. In June 2025, startup XGS Energy announced plans to build a 150-MW next-generation geothermal project in New Mexico by 2030, specifically to support Meta's data center operations.8 Meta also signed a similar agreement with Sage Geosystems for 150 MW of geothermal power at an unspecified site east of the Rocky Mountains, with the first phase expected online in 2027. These projects highlight geothermal's potential to provide reliable, carbon-free power for energy-intensive operations like AI data centers, which require consistent, dispatchable electricity. Analysis suggests that a 1-gigawatt enhanced geothermal project in the Western U.S. could achieve a levelized cost of energy competitive with fossil-gas power plants, especially with tax credits.
Furthermore, local initiatives continue to leverage geothermal. In Madison, Connecticut, town officials are moving forward with a geothermal well project at Town Campus and a similar system for the new Neck River Elementary School, having secured federal reimbursements for these projects. These efforts demonstrate the ongoing commitment to geothermal energy at the local level, contributing to energy efficiency across facilities. The OBBBA's preservation of geothermal tax credits through 2033 provides a stable environment for such developments, ensuring that projects commencing construction by this deadline can qualify for full credits.
Similar to nuclear and hydropower, FEOC restrictions also apply to geothermal projects, requiring developers to ensure their supply chains comply with these new rules. This ensures national security and supply chain integrity, protecting American interests in critical energy infrastructure.
Image Suggestion: A geothermal drilling rig, representing the exploration and development of geothermal resources.
Wind & Solar
The OBBBA significantly curtails incentives for wind and solar energy, marking a sharp reversal from the broad support these sectors received under the IRA. The Act rolls back clean energy tax credits that were deemed market-distorting, leading to a re-evaluation of projects that were overly reliant on federal subsidies rather than inherent economic viability.
The bill phases out the clean electricity investment and production tax credits for wind and solar projects, making those entering service after 2027 ineligible. Further emphasizing this policy shift, an executive order signed by President Trump on July 7, 2025, specifically directs the Treasury Department to revoke these tax credits (Sections 45Y and 48E) and tighten eligibility rules within 45 days. This executive action labels wind and solar as unreliable and overly dependent on foreign-controlled supply chains, reinforcing the administration's stance on prioritizing energy independence and grid stability.
A notable provision, sometimes referred to as a "loophole," allows projects that commit 5% of their costs within 12 months (by July 2026) to qualify as "under construction" and receive a four-year extension, potentially extending subsidies through July 2030. However, the Treasury Department retains the authority to limit this extension by tightening the definition of "start construction," which could impact the number of projects able to utilize this provision, ensuring that only genuinely committed projects receive support.
Project Cancellations and Disqualifications:
The OBBBA's changes are expected to lead to a significant number of clean energy project cancellations and disqualifications. Analysis indicates that approximately 300 GW of projects across the seven major Independent System Operators (ISOs) will likely be disqualified from receiving tax credits, including nearly 200 GW of solar and nearly 100 GW of wind (both onshore and offshore). Texas, a state with substantial renewable energy development, has already seen a sharp rise in cancellations of renewable energy and battery storage projects, with over 9 GW shelved or canceled in April and May 2025 alone. This includes 3.5 GW of solar farms and nearly 2 GW of wind projects, signaling a potential cooling-off period for clean energy development across the country as the market adjusts to reduced federal incentives.
The differential treatment of energy sources under the OBBBA is evident here. While wind and solar incentives are being significantly reduced or eliminated, nuclear, hydro, and geothermal largely maintain their credit eligibility. This is not a uniform rollback of "clean energy" support but a selective one, indicating a policy preference for baseload, dispatchable power sources that can offer continuous, on-demand power, which is a critical aspect of economic viability and grid resilience.
Electric Vehicles (EVs) & Batteries
The OBBBA introduces substantial changes to the electric vehicle (EV) and battery tax credits that were established under the IRA, which are anticipated to have a significant impact on U.S. EV sales and manufacturing competitiveness by allowing market forces to dictate consumer choice rather than government mandates.
Specifically, the Act terminates several key consumer and commercial EV credits. This includes the $7,500 new EV credit (30D), the $4,000 used EV credit (25E), and the widely utilized 45W commercial EV credit. Furthermore, a hard sunset date of 2033 is set for the 45X battery production tax credit. This weakened incentive structure is seen as a necessary step to ensure that the EV market develops based on genuine consumer demand and technological innovation, rather than artificial government support.
In a move designed to influence consumer purchasing behavior, the OBBBA also introduces a new auto loan interest deduction for certain U.S.-assembled vehicles through 2028. This deduction is structured to incentivize the purchase of lower-cost domestic gasoline cars, thereby increasing consumer preference for internal combustion engine vehicles over EVs, reflecting a commitment to consumer choice and a diverse automotive market.
These rollbacks of EV and battery tax credits are projected to result in a decline in U.S. EV sales by over 40% through 2030, as the market adjusts to a more level playing field without heavy subsidies. Such a decline could lead to a shift in EV market share towards foreign competitors, particularly China, and jeopardize crucial battery investments and innovation necessary for the advancement of electric mobility. The reduction in demand for critical minerals and batteries, a consequence of these cuts, could also make financing for related projects more challenging, potentially impeding efforts to diversify critical mineral supplies. The OBBBA's approach ensures that investments in the automotive sector are driven by market demand and economic fundamentals, rather than government intervention.
IV. Deep Dive: The Fuel Industry's Evolving Landscape
Federal Support for Oil & Gas
The One Big Beautiful Bill Act is structured to significantly benefit and further subsidize the oil and gas industry, underscoring a clear federal emphasis on fossil fuel production and enhanced energy independence. This approach represents a proactive strategy to bolster the sector's economic viability and expansion, recognizing its critical role in national security and economic stability.
The Act mandates new oil and natural gas lease sales across federal lands and offshore areas, explicitly unlinking these sales from renewables leasing. Under the previous Inflation Reduction Act (IRA), the Department of the Interior (DOI) was required to offer a certain amount of acreage for oil and gas development before it could issue leases for renewable energy projects. For instance, offshore wind leases were contingent on offering at least 60 million acres for offshore oil and gas in the preceding year, and onshore wind and solar right-of-ways required prior onshore oil and gas lease sales of at least 2 million acres or 50 percent of expressions of interest, whichever was less. The OBBBA removes these artificial linkages, allowing oil and gas development to proceed independently based on market demand and resource potential, thereby streamlining the process and reducing bureaucratic hurdles. This includes adding 30 offerings in the Gulf region over 15 years to the existing leasing program and requiring quarterly sales in nine U.S. states with substantial onshore federal acreage, as well as in Alaska’s National Petroleum Reserve. Furthermore, royalty rates are reinstated to their pre-IRA levels, ranging from 12.5% to 16.7%, and non-competitive bids are reintroduced, a practice previously ended by the IRA.
Enhanced Oil Recovery (EOR): EOR is a process that involves injecting substances (such as captured carbon dioxide, natural gas, or water) into an oil reservoir to increase the amount of crude oil that can be extracted. This method is used to recover oil that would otherwise be left behind after primary and secondary recovery techniques. EOR can significantly boost oil production from existing fields, making previously uneconomical reserves viable.
A key provision involves the carbon capture tax credit (45Q), which is increased for producers utilizing captured carbon dioxide for enhanced oil recovery (EOR). The bill equalizes the credit amount for both permanent carbon storage and utilization in products or for EOR ($85/ton for CCS, $180/ton for DAC). This parity strengthens the economic viability of EOR projects, potentially leading to an increase in U.S. oil production and market share, particularly as EOR can result in lower carbon content barrels. This demonstrates a nuanced policy approach where a technology often associated with emissions reduction is strategically integrated to boost fossil fuel output, directly supporting the petroleum sector's economic viability and expansion.
Producers now benefit from the ability to fully deduct intangible drilling costs, which typically constitute 60-80% of well costs, reversing the IRA's partial deduction. Additionally, the methane emissions fee is delayed until 2035, providing the industry with an extended period to prepare for its implementation, ensuring a more practical and economically sound transition.
Table 2: Federal Support for the Fuel Industry Under OBBBA
The Reintroduction of Non-Competitive Bids: Fostering Exploration and Economic Activity
The reintroduction of non-competitive bids under the OBBBA is a significant policy shift that reflects a fundamental philosophical disagreement about the nature of "speculation" in resource development. Under the previous Inflation Reduction Act (IRA), the Bureau of Land Management (BLM) had rescinded its authority to issue non-competitive leases, requiring lands to be primarily offered through competitive bidding processes. This was framed by IRA proponents as closing a "costly loophole" that encouraged "speculators" to acquire leases with minimal compensation, tying up land with little likelihood of production and generating "negligible revenue" for taxpayers.
However, proponents of the OBBBA and a pro-market approach view non-competitive leasing as a vital mechanism for fostering exploration and economic activity, particularly in areas with unproven potential. From a capitalist perspective, "speculation" is not inherently negative; rather, it is a driving force of innovation and risk-taking essential for discovering and developing new resources. Acquiring mineral rights, even at a low initial cost, allows companies to invest in geological surveys, seismic testing, and other exploratory activities that are inherently uncertain. These initial, lower-cost acquisitions enable companies to "gamble on the likelihood that those mineral rights will pay off in the future," providing an "option" on future discovery and production without the immediate high financial commitment of a competitive auction.
The OBBBA's reinstatement of non-competitive bids allows parcels that do not receive acceptable bids in competitive sales to be re-listed and awarded for a minimal administrative fee, sometimes as low as $75. This ensures that potentially valuable federal lands remain accessible for development, even if their immediate commercial viability is not yet fully established. This approach recognizes that the true value of mineral rights is dynamic and influenced by market conditions, production history, and future potential. By reducing the initial barrier to entry, non-competitive leasing encourages broader participation in exploration, allowing a wider range of companies, including smaller entities, to take calculated risks that can lead to significant discoveries and economic benefits down the line.
This policy reflects a belief that the overall economic activity, job creation, and strategic independence derived from increased fossil fuel output outweigh the incremental revenue gains that might come from stricter leasing terms. It prioritizes the "unleashing" of domestic production by loosening regulatory burdens that had previously constrained the industry. The OBBBA's reintroduction of non-competitive bids is thus seen as a pragmatic step to ensure that American energy producers can operate with greater certainty and efficiency, advancing the broader goals of energy security, economic growth, and reduced reliance on foreign sources. It fosters a market where entrepreneurial risk-taking is rewarded, ultimately benefiting the nation through increased energy supply and economic prosperity.
The Elimination of CAFE Penalties
A significant legislative change introduced by the OBBBA, specifically Section 40006, is the elimination of civil penalties for noncompliance with federal Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks. This provision resets the maximum civil penalty to $0.00, meaning that while the CAFE statute and its implementing regulations technically remain in place, there are no financial penalties for failing to meet the specified fuel economy requirements. It is important to note that this change is not retroactive, and manufacturers remain liable for any penalties incurred prior to the Act's enactment.
This legislative adjustment fundamentally alters the incentive structure for automotive manufacturers. Without the prospect of substantial civil penalties, manufacturers face no direct financial repercussions for producing vehicles that do not meet stringent fuel economy requirements. This shift allows market forces, rather than government mandates, to determine the composition of the vehicle fleet, ensuring that consumer preferences drive innovation and supply. This approach recognizes that consumers have diverse needs and preferences and should be free to choose the vehicle—internal combustion, hybrid, electric, or future alternatives—that best meets their circumstances. The removal of this regulatory "stick" directly changes the economic calculus for automakers, promoting competition on quality, price, and innovation, leading to better products and greater accountability.
The elimination of penalties is also expected to substantially diminish the market for tradeable CAFE compliance credits. These credits were previously earned by companies whose fleets exceeded fuel economy standards and could be sold to other manufacturers to offset their penalties. This directly impacts electric vehicle manufacturers, such as Tesla, which has historically relied on the sale of these credits as a significant revenue stream. This, combined with the OBBBA's termination of tax credits for EV purchases, further disincentivizes electric vehicles from a federal policy standpoint, allowing the market to determine their viability. This federal policy shift, by reducing the regulatory push for fuel efficiency and electrification, could sustain or increase demand for petroleum-based fuels, reflecting genuine consumer choice.
Despite the elimination of civil penalties for light vehicles, companies still bear obligations under the CAFE statute. These include determining their fuel economy averages and submitting compliance reports multiple times a year. Failure to report accurate information can still lead to investigations and substantial civil fines. It is also crucial to understand that this change does not affect the separate fuel efficiency regime and its considerable penalties for medium- and heavy-duty vehicles, which remain in place.
Table 3: CAFE Penalty Elimination: Key Implications
Impact on Renewable Identification Numbers (RINs) and Foreign Biofuels
The OBBBA introduces significant changes that will impact the Renewable Fuel Standard (RFS) program, particularly concerning the eligibility of foreign biofuels for Renewable Identification Number (RIN) credits. While the EPA had previously proposed a reduction in RINs generated for imported renewable fuel and fuel produced from foreign feedstocks, the OBBBA directly addresses this by requiring transportation fuel to be exclusively derived from feedstocks produced or grown in the United States, Canada, or Mexico to qualify for the Section 45Z clean fuel production credit, effective for fuel produced after December 31, 2025.
This restriction is expected to significantly affect producers relying on foreign feedstocks, such as biodiesel producers using imported fats, greases, or oils, as well as sustainable aviation fuel producers using imported sugarcane ethanol. This policy shift aligns with the OBBBA's broader goal of bolstering national energy independence and ensuring that federal incentives primarily benefit domestic production and employment.
California, in particular, has become highly dependent on renewable diesel, with its consumption being more than eight times the amount produced within the state in 2021. Much of this renewable diesel is sourced from other U.S. states, but a significant portion has also relied on foreign feedstocks or imported biofuels. The OBBBA's new feedstock origin requirements for federal tax credits will likely necessitate a re-evaluation of supply chains for California's biofuel market, potentially driving increased demand for North American-sourced feedstocks and encouraging domestic biofuel production to meet the state's Low Carbon Fuel Standard (LCFS) requirements without relying on foreign subsidies. This change reinforces the principle that federal support should prioritize American energy security and economic development.
V. California's Fuel Regulatory Environment: A Battleground of Policy and Law
California Air Resources Board (CARB) and the Low Carbon Fuel Standard (LCFS)
Despite significant shifts in federal energy policy, the California Air Resources Board (CARB) continues to actively implement and update its Low Carbon Fuel Standard (LCFS) regulation, with the latest amendments taking effect on July 1, 2025. The LCFS is a cornerstone of California's strategy to reduce the carbon intensity of transportation fuels by setting declining targets, aiming for a 30% reduction by 2030 and a 90% reduction by 2045. This sustained effort by CARB demonstrates a persistent divergence from the federal OBBBA's direction, actively promoting reduced petroleum dependence and the adoption of zero-emission vehicles. This creates a distinct bifurcated regulatory environment within the U.S., requiring companies to navigate differing policy priorities between federal and state jurisdictions.
CARB asserts that the LCFS has generated substantial private sector investment, estimated at $4 billion annually, and has displaced over 30 billion gallons of petroleum fuel. The program is also credited with expanding access to electric vehicle charging and hydrogen refueling infrastructure. However, it is important to note that Shell, a major player, has recently closed nearly all of its hydrogen refueling stations in California, citing supply complications and external market factors, choosing to focus on heavy-duty transport over light-duty passenger vehicles. This highlights the challenges and market realities faced by certain alternative fuel infrastructures, even within California's supportive regulatory environment. While there may be a potential near-term increase of 5-8 cents per gallon due to updated standards, the LCFS is projected to lead to long-term savings for Californians on fuel costs. CARB's mission explicitly balances the reduction of air pollutants with a consideration of economic effects, aiming for a cost-effective path to support clean fuels and infrastructure.
Legislative Efforts Against CARB Regulations
The U.S. Congress has taken aggressive steps to challenge California's vehicle emissions mandates. On May 1, 2025, the U.S. House of Representatives passed resolutions attempting to block California's Advanced Clean Trucks and Advanced Clean Cars II regulations. The Senate followed suit on May 22, 2025, approving Congressional Review Act (CRA) resolutions to overturn EPA waivers previously granted to California for its Advanced Clean Cars II (ACC II), Advanced Clean Trucks (ACT), and 'Omnibus' Low NOx regulations. President Trump signed these CRA resolutions into law on June 12, 2025.
These CRA disapprovals effectively block what has been referred to as California's "EV Mandate" and related waivers. Historically, Clean Air Act waivers granted to California have not been considered "rules" reviewable under the CRA. Both the Government Accountability Office (GAO) and the Senate Parliamentarian advised that these waivers were not subject to the CRA. However, the Senate majority advanced the resolutions by employing procedural maneuvers to effectively override the Parliamentarian's ruling, underscoring the strong political will behind this federal intervention to restore market-driven policies.
California's response has been swift and resolute. Attorney General Rob Bonta has publicly stated the state's intention to file a lawsuit against the Trump administration to challenge these resolutions, asserting that the CRA does not apply to EPA waivers. This indicates an escalating legal battle over the fundamental question of federal preemption versus California's long-standing authority under the Clean Air Act to set more protective vehicle emissions standards. This aggressive federal challenge to California's unique authority creates profound regulatory uncertainty and legal risk for businesses, particularly automotive and fuel companies, operating in California and the other Section 177 states that have adopted California's standards. This high-stakes legal and political conflict will significantly shape the future of vehicle emissions and fuel markets.
Recent Legal Developments Affecting CARB
The legal landscape surrounding California's environmental regulations is dynamic, marked by ongoing challenges and federal interventions. A significant development occurred on June 20, 2025, when the U.S. Supreme Court ruled in Diamond Alternative Energy LLC v. EPA, siding with fuel industry groups, including Valero's Diamond Alternative Energy and the American Fuel & Petrochemical Manufacturers (AFPM) trade association. The Supreme Court overturned a lower court's decision that had dismissed a lawsuit from these fuel producers, asserting that they do have the required legal standing to challenge the EPA's waiver that allowed California to implement its Advanced Clean Car I standards. While this specific case involved the Clean Car I standards, which were nearing their end, the ruling is significant as it allows fuel industry groups to challenge California's separate pollution standards, arguing that the EPA's waiver exceeded its authority and harmed their businesses by lowering demand for liquid fuels. This decision sends the case back to the lower court for reconsideration, opening a pathway for further legal scrutiny of California's regulatory authority.
This Supreme Court ruling comes just days after President Trump signed Congressional orders revoking EPA waivers issued during the Biden Administration for California's Advanced Clean Cars II regulation, Advanced Clean Trucks regulation, and the Heavy-Duty Low-NOx Omnibus rule. The legality of Congress's action under the Congressional Review Act is being questioned, with California and other states immediately filing lawsuits challenging these "illegal resolutions targeting California's clean vehicles program."
Beyond these direct challenges to California's authority, the U.S. Department of Justice (DOJ) has also taken action against other states' climate initiatives. The DOJ has filed lawsuits against New York and Vermont over their "climate superfund" laws, which aim to impose penalties on oil and gas producers for historical greenhouse gas emissions. Additionally, the DOJ has taken preemptive action against Hawaii and Michigan to block them from suing oil and gas companies.
This complex legal web, characterized by federal challenges to state authority, state-level climate lawsuits, and federal DOJ actions against other states' climate initiatives, creates significant uncertainty and risk for the entire energy industry, particularly for companies operating in states with aggressive climate policies. This multi-front legal conflict will continue to shape the regulatory environment for the fuel industry.
Table 4: California CARB Regulations: Key Initiatives and Challenges
VI. The Inflation Reduction Act: A Costly and Ineffective Experiment
The Inflation Reduction Act (IRA) of 2022, despite its ambitious claims, proved to be a costly and often ineffective experiment in government-led energy transition. Its approach, characterized by massive subsidies and market distortions, ultimately failed to deliver on its promises of reduced energy costs and significant emissions reductions, while fostering an environment ripe for inefficiency and potential fraud.
Soaring Costs and Fiscal Irresponsibility: The IRA's clean energy subsidies, initially projected to cost $270 billion over ten years, saw their estimated costs balloon dramatically. Within a year, estimates roughly doubled to $536 billion, and current projections now stand at an astonishing $1.2 trillion over ten years, with some analyses suggesting long-term implications could reach $4.7 trillion by 2050. These uncapped provisions, particularly the Production Tax Credit and Investment Tax Credit for clean energy producers, created an open-ended financial liability for taxpayers. This "green corporate welfare" funneled unprecedented sums of money to a limited number of well-connected firms and special interests, rather than genuinely benefiting ordinary Americans.
Market Distortion and Inefficiency: The IRA's generous tax credits and subsidized financing for favored green corporations significantly distorted energy markets. By providing massive taxpayer money to qualifying energy sources, it became difficult for other, more reliable sources like natural gas, coal, and nuclear to compete economically, even when they were essential for grid reliability. This intervention created an artificial playing field where economic viability was secondary to government mandates, leading to a "snowball" effect of market distortions. Many of these subsidies did not even fund new energy projects but instead paid for already-planned developments or upgrades to existing renewable facilities, simply enriching investors with minimal additional climate benefits.
Fraud and Lack of Accountability: The allocation of billions of dollars to renewable energy projects and greenhouse gas reduction initiatives under the IRA created significant risks of fraud and misuse of taxpayer funds. Companies and individuals sought to exploit these programs by falsifying information about project eligibility, inflating costs, misrepresenting the origin or compliance of materials, and claiming tax credits for incomplete or ineligible projects. The law's provisions for increased credits for meeting prevailing wage and apprenticeship requirements also opened avenues for false claims. This "greenwashing" undermined public trust in climate programs, diverted funds from impactful projects, and created an unfair advantage for unscrupulous businesses over honest competitors. The IRA's focus on political goals over maximizing returns in its lending programs further exacerbated these issues.
Failure to Deliver on Promises: Despite its massive costs, the IRA's promises of steep reductions in greenhouse gas emissions largely fell flat. Early analyses that suggested the subsidies would lead to significant decarbonization proved overly optimistic. In essence, the IRA's subsidies were increasingly proving to be costly and ineffective, representing "bad policy" for those who favor sensible government policies and "exceptionally bad policy" for skeptics concerned about the costs of government overreach. The OBBBA's decisive action to roll back these provisions is a necessary correction, prioritizing fiscal responsibility, market efficiency, and genuine energy independence over a failed experiment in centralized economic planning.
VII. Conclusion: Economic Viability and the Future of Petroleum Fuels
The One Big Beautiful Bill Act represents a decisive turn in U.S. energy policy, moving away from broad federal support for all clean energy technologies towards a more targeted approach. This reorientation actively promotes fossil fuel production and prioritizes baseload power sources such as nuclear, hydropower, and geothermal. The overarching aim is to bolster domestic energy independence and competitiveness, aligning with the principle that energy projects should be economically viable on their own merits, rather than relying on extensive federal subsidies that proved costly and inefficient under the previous administration.
The OBBBA's provisions directly support the economic viability and continued demand for petroleum-based fuels. Enhanced tax deductions for drilling, delayed methane emissions fees, and the elimination of CAFE penalties for light vehicles all contribute to a more favorable operating environment for the fossil fuel sector. Furthermore, the strategic integration of carbon capture incentives linked to enhanced oil recovery underscores a federal commitment to leveraging technological advancements to sustain and potentially expand fossil fuel production.1 The new restrictions on foreign feedstocks for clean fuel production credits also ensure that federal support benefits North American producers, strengthening domestic supply chains and energy security.
While federal policy under the OBBBA largely favors the fossil fuel sector, the persistence of aggressive state-level regulations, particularly in California, creates a complex and often contentious operating environment. Companies in the fuel industry must navigate this bifurcated landscape, adapting their strategies to both federal incentives and state-specific mandates and the associated legal challenges. The ongoing legal battles between federal and state authorities, as well as industry groups and state regulators, introduce a significant layer of regulatory uncertainty and risk that must be carefully managed.
In this evolving policy environment, the emphasis on market forces and inherent economic viability becomes paramount. The success of energy projects, including those in the petroleum sector, will increasingly depend on their inherent economic competitiveness and their ability to innovate to meet evolving market demands and regulatory pressures. The development of technologies, such as chemical additives designed to make petroleum-based fuels non-polluting through quicker and more complete combustion and neutralization of sulfur, becomes particularly relevant in this context. Such innovations offer solutions that can enhance the economic and environmental profile of conventional fuels within a market-driven framework, providing a pathway for continued relevance and competitiveness in a dynamic energy landscape.
About T Bros Oil & Gas Co.
T Bros Oil & Gas Co. is dedicated to advancing sustainable transportation with innovative, clean energy solutions, supporting economic growth and environmental stewardship.
Media Contact
Timothy Wetzel
(310) 658-1508
SOURCE: T Bros Oil & Gas Co. and Gemini.
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