Senate bill increases value of tax credits to use CO2 captured to produce more oil

The U.S. Senate committee proposed that the tax credit to capture carbon emissions when recovering oil be equal to the tax credit of $85/metric tonne for permanently burying these emissions underground. This would be a boon to oil and gas producers.

In its draft bill, the finance committee, which is a key part of the Republican budget package, proposed a change to the 45Q tax credit. This was formerly part of 2022's Inflation Reduction act. The House of Representatives' version of the bill, which passed last month by one vote in that chamber, left the credit for enhanced recovery projects at 60/metric ton.

This change is a result of a Republican Wyoming Senator John Barrasso's proposal to place EOR projects on par with carbon sequestration. The proposal was supported by senators from states that produce oil, such as North Dakota and Louisiana.

Tax credits for permanent removal were higher than those for EOR under the IRA (former President Joe Biden’s signature climate legislation) because there was concern that the carbon capture and direct-air capture technologies might encourage oil companies keep drilling, thereby undermining efforts to reduce emissions related to global warming.

Occidental has two projects for direct air capture in Texas. It plans to remove the carbon permanently, store it underground, and then use CO2 as a way to recover oil.

Occidental declined comment on the Senate's change. Carbon Utilization Research Council (CUR), which Occidental leads, has welcomed the decision to place EOR on par with sequestration.

Shannon Angielski is the executive director of CURC. She said that as production reaches maturity, it will be necessary to inject large amounts of CO2 from industrial sources in order to maintain oil and gas production.

Carbon180, a group that advocates for carbon removal, said that it could lead to an increase in fossil fuel production.

Carbon180 Director Erin Burns said, "Federal policies should prioritize durable carbon-removal projects that can create wealth for communities throughout the country -- and not increased oil production."

Exxon, Chevron and other oil companies are also involved in the carbon capture and DAC.

Sasha Mackler from ExxonMobil Low Carbon Solutions' global policy and advocacy division said that the company didn't lobby to bring the EOR tax credits on par with carbon sequestration. (Reporting from Valerie Volcovici and Sheila Dang, both in Washington; editing by David Gregorio).

(source: Reuters)