Tax credits for oil extraction now equal credits for carbon storage

What it does

This bill modifies the federal tax credit for carbon capture and storage (Section 45Q of the tax code) to treat different uses of captured carbon dioxide equally. Currently, the law provides different credit amounts depending on whether CO2 is stored permanently or used in oil and gas recovery. The bill consolidates these into a single credit structure, sets the credit at $17 per metric ton (rising to $36 under certain conditions with inflation adjustments), and applies these rates uniformly to all qualified uses starting in 2025.

Why we flagged it

The bill's operative mechanism is a restructuring and expansion of the Section 45Q tax credit for CO2 sequestration. It consolidates multiple credit tiers into a unified structure and raises the credit amount, making it a direct tax expenditure favoring carbon capture industries.

What the text implies

• By equalizing tax credits for CO2 used in enhanced oil and gas recovery (EOR) with credits for permanent geological storage, the bill may effectively subsidize fossil fuel extraction. EOR uses captured CO2 to increase oil/gas production, which is then burned — the climate benefit is temporary or net-negative, yet receives the same tax credit as permanent sequestration.
• The bill's consolidation of credit tiers and removal of paragraph (4) eliminates what may have been a lower-credit category for certain uses. Without access to the full prior text of 45Q(a)(4), the exact prior structure cannot be confirmed, but the net effect appears to raise credits across the board, increasing federal tax expenditure.

The full analysis lists 4 implications of this text.

Who stands to gain

carbon capture technology companies; oil and gas operators (via enhanced oil recovery credit parity); direct air capture (DAC) firms