Trump's budget bill to boost carbon capture subsidy for oil producers

US President Donald Trump signed a bill on July 4 that will increase tax breaks for carbon capture projects linked to oil production, drawing muted praise from proponents of the climate technology.

Republicans' "One Big Beautiful Bill," which narrowly passed Congress on July 3, would award emitters up to $85 per metric ton of CO2 captured and used in enhanced oil recovery. The change would represent a $25/metric ton increase, bringing the incentive on par with the incentive for carbon storage without any associated oil production.

EOR is a method of squeezing more crude out of a nearly depleted oilfield by shooting CO2 into the reservoir. After the oil is flushed out, the injection wells are sealed, trapping the greenhouse gas underground. Carbon storage, by contrast, generally refers to the injection of captured CO2 even deeper underground, solely for the sake of reducing emissions.

Credit levels would also rise to $85/metric ton for emitters that capture their CO2 for other end uses, such as synthetic fuels production or carbonating beverages.

EOR and other utilization projects that pull CO2 from ambient air instead of smokestacks would be eligible for an even higher credit of $180/metric ton, up from $130/metric ton.

Congress' enhancements to the Section 45Q carbon capture tax credit came alongside steep cuts to other clean energy and climate provisions, particularly those supporting renewable power generation. The final bill also nixed amendments to 45Q that had been proposed in earlier drafts and opposed by carbon capture advocates, including the elimination of transferability and changes to the base indexing year for inflation.

The American Petroleum Institute had lobbied for the boost to EOR, gaining the support of Sens. John Barrasso, James Lankford, Bill Cassidy, John Hoeven, Jim Justice and Tim Sheehy.

But the 45Q expansion received mixed reviews from other industry watchers.

"If you needed more evidence that 'carbon capture' is just a ploy by Big Oil to keep drilling and polluting forever ... your Senators just delivered," anti-pipeline group Bold Alliance said in an email to its supporters ahead of the House vote.

The Carbon Capture Coalition, whose diverse members include Occidental Petroleum Corp. and climate group Clean Air Task Force, does not have a consensus position on the higher credit level for EOR, executive director Jessie Stolark said in an interview. However, the advocacy group had sought credit-level parity for other forms of carbon reuse.

"At this point, anything that we can do to see more capture and direct air capture technology being realized is a good thing," Stolark said. "But I would say that we still very much see long-term geologic storage as where the industry is moving."

A climate case for EOR

Critics of the 45Q credit have argued that capturing CO2 for oil production is counterproductive and merely a "greenwashing" tactic. Capturing CO2 and storing it, while less egregious, could still lock in fossil fuel infrastructure, according to some environmental groups.

Carbon capture advocates, however, say that encouraging EOR operators to source recycled CO2 — as opposed to mined CO2 — could still be a net positive for the climate. If oil demand is held constant, EOR also minimizes exploration and drilling because it increases the productivity of existing wells and infrastructure, Stolark said.

"I understand the desire to reduce fossil fuel dependence," Stolark said. "But [EOR is] a way to make sure that we're utilizing existing resources as opposed to new resources."

Furthermore, the oil produced from EOR operations in places like West Texas has fewer associated emissions than the imported oil it would likely be replacing, said Jeff Brown, a distinguished associate at the think tank EFI Foundation and adjunct professor at Stanford University's Doerr School of Sustainability.

"I'd rather not do any of it," Brown said during a June 24 panel discussion hosted by the US Energy Association. But "given the real world," Brown said he'd rather see an industrial facility capture its CO2 for EOR than release it.

Sending CO2 to an existing oilfield is also much easier than securing permits for new CO2 pipelines and storage, "the two things that are killing a lot of [carbon capture] projects," Brown said. In this way, Brown added, Congress' action could improve carbon capture's economics even beyond the extra $25/metric ton tax break and additional revenue stream.

Stolark acknowledged it is unclear how the credit enhancements will impact the deployment of carbon capture for oil production relative to long-term storage. But given that EOR is a specialized extraction method, Stolark doubted the higher tax break will get more producers "in the game."

Instead, "this is going to make those projects that are on the cost margins [become] financially viable," Stolark added.