Senate bill would raise value of tax credit to use captured CO2 to produce more oil

By Valerie Volcovici

WASHINGTON (Reuters) -A U.S. Senate panel proposed making the tax credit for capturing carbon emissions for recovering oil equal to the $85/metric ton tax credit for permanently burying those emissions underground, a boon for oil and gas producers.

The finance committee proposed the change to the so-called 45Q tax credit, which was part of the 2022 Inflation Reduction Act, in its draft bill that forms a central part of the sprawling Republican budget package. The House of Representatives version of the bill that passed by one vote last month in that chamber left the credit for enhanced oil recovery projects at $60/metric ton.

The change reflects a proposal made by Wyoming Senator John Barrasso, a Republican, to put EOR projects at parity with carbon sequestration that got support from senators from other oil-producing states like North Dakota and Louisiana.

Under the IRA, former President Joe Biden's signature climate law, tax credits for permanent removal had a higher value than for EOR because of concerns that carbon capture and direct air capture technologies would encourage oil companies to keep drilling for oil, undermining the fight to limit emissions linked to global warming.

Occidental, which has two direct air capture projects in Texas, is planning to permanently remove carbon and store it underground and use CO2 to recover oil, which it says makes the barrels more environmentally friendly.

Occidental declined to comment on the Senate change. The Carbon Utilization Research Council, which Occidental chairs, welcomed the decision to put EOR at parity with sequestration.

"As production matures with current recovery methods, there is critical need for large-scale injection in formations which will need billions of tons of CO2 captured from industrial sources to sustain oil and gas production with EOR," said Shannon Angielski, executive director of CURC, adding that the barrels of oil produced would be lower carbon intensity.

Carbon removal advocacy group Carbon180 said it could risk pulling investment more toward fossil fuel production.

"Federal policy should prioritize durable carbon removal projects that can create prosperity for communities across the country — not expanded oil production," said Carbon180 director Erin Burns.

Other oil companies involved in carbon capture and DAC include Exxon and Chevron.

Sasha Mackler, global policy & advocacy for ExxonMobil Low Carbon Solutions, told Reuters that the company did not lobby for bringing the EOR tax credit to parity with carbon sequestration.

(Reporting by Valerie Volcovici in Washington and Sheila Dang in Houston; Editing by David Gregorio)