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 inflation adjustment mechanism (pegging to 2025 instead of 1990) may cause the credit to rise faster than historical inflation, further increasing the subsidy over time.
• The bill applies retroactively to taxable years beginning after December 31, 2024, potentially allowing retroactive claims and creating administrative complexity for taxpayers and the IRS.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

The bill expands tax credits for carbon capture broadly, which may incentivize climate-beneficial CO2 sequestration and reduce the cost of carbon removal technologies — a public benefit. However, by equalizing credits for CO2 used in enhanced oil and gas recovery (EOR) with permanent storage, the bill may subsidize fossil fuel extraction at public expense, offsetting climate gains and directing tax revenue to oil and gas operators rather than purely climate-focused sequestration.

Who stands to gain

• carbon capture technology companies
• oil and gas operators (via enhanced oil recovery credit parity)
• direct air capture (DAC) firms
• industrial CO2 utilization companies

Named in the bill

Internal Revenue Code Section 45Q, Section 6417(d)(3)(C)(i)(II)(bb), enhanced oil recovery (EOR), natural gas recovery, secure geological storage, carbon dioxide (CO2), tertiary injectant

Where it stands

3 cosponsors: 3 Republicans.

• Feb 5, 2025 — Introduced · Congress.gov: “Introduced in House”
• Feb 5, 2025 — Referred to House Committee on Ways and Means · Congress.gov: “Referred to the House Committee on Ways and Means”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.

Money around this bill

1 lobbying clients named this bill on 2 disclosure filings across 2 quarters, Dec 2025 to Jun 2026. Those filings disclosed $500,000 in lobbying spend. A filing names 24 bills on average, so that figure is what each filing reported, not a share belonging to this bill.

More lobbying clients named this bill than 0% of bills with at least one filing.

Kevin Hern, the sponsor, reported $2,075,651 in PAC receipts in the 2026 cycle.

• Independent Petroleum Association of America — $500,000 on 2 filings

Lobbying Disclosure Act filings through Jul 18, 2026. A filing shows who paid to lobby on a bill it names, not what changed.