June 9, 2025
A Biden-era tax penalty on America’s independent producers is holding back domestic energy production, just as the rapid proliferation of artificial intelligence (AI) ushers in an era of unprecedented energy demand. As the global AI competition intensifies, it’s essential that America takes the necessary steps to win – but that won’t happen without unleashing domestic energy production through smart tax policy to meet the enormous power demand that AI requires.
By the Numbers
According to the International Energy Agency, global electricity demand is projected to grow by roughly 4% annually through 2027, the equivalent of adding an entire Japan’s worth of electricity consumption each year. Additionally, according to a Goldman Sachs report, AI will drive a 165% increase in data center power demand by 2030.
To meet this demand and secure America’s global leadership in AI, we must ensure a reliable and affordable supply of energy.
Independent Producers Play a Critical Role in Meeting Demand
90% of America’s natural gas is sourced from independent producers.
And thanks to the hard work of these producers, natural gas already generates about 43% of U.S. electricity – the largest of any resource used in the country. Natural gas is critical in its unique ability to ramp up or down very quickly to meet electricity demand fluctuations over the course of a typical day.
As data centers expand, U.S. power sector demand for natural gas is expected to increase 28% by 2030, including a 20% increase driven by AI data centers alone.
Smart IDC Policy Can Fuel Energy Growth
Congress has an opportunity to spur domestic energy production through common-sense, durable policy reform in reconciliation legislation. This includes tax policy and the equitable treatment of capital investment. Reinstating the immediate expensing of intangible drilling costs (IDCs) is one of the most effective ways to achieve this goal without changing the fiscal profile of the reconciliation package, according to the Tax Foundation.
IDCs are the upfront costs of drilling – things like labor, site preparation, fuel, and equipment. These expenses account for up to 80% of the cost of a new well. By allowing producers to deduct these expenses in the year they’re incurred, smart IDC tax policy enables companies to reinvest quickly into more exploration, more development, and ultimately, more energy production.
These developments not only support the energy sector but also provide the necessary foundation for the expansion of AI data centers across the country.
As reconciliation legislation advances, the Senate must act to align tax policies with our energy and technology goals, ensuring a competitive edge in the global AI landscape. Fixing the tax treatment of IDCs is instrumental in securing this advantage, enabling the country to harness its energy resources effectively while supporting the infrastructure essential for AI growth.
For more background on IDCs, check out our blog series on the importance of smart tax policy for IDCs:
