Federal tax credit now pays oil companies to pump more fossil fuels

What it does

This bill amends the federal tax credit for carbon capture (Section 45Q of the Internal Revenue Code) to expand eligibility and increase credit amounts. It allows companies to claim the same tax credit whether they store captured carbon dioxide underground, use it to extract more oil and gas, or utilize it in other industrial applications—creating parity across different uses. The credit increases from $17 to $36 per metric ton for certain uses, with inflation adjustments after 2026.

Why we flagged it

The bill's operative mechanism is to expand a carbon-capture tax credit while explicitly treating enhanced oil and gas recovery as an equally eligible use. The title 'Enhancing Energy Recovery' obscures that the primary effect is to subsidize oil and gas extraction under the guise of carbon management. The credit increase and parity language are designed to make fossil-fuel-linked carbon capture as attractive as permanent storage.

What the text implies

• The bill treats CO2 used in enhanced oil recovery (EOR) identically to CO2 in permanent geological storage for tax-credit purposes, despite fundamentally different climate outcomes. EOR-captured CO2 is not sequestered; it is injected to extract more oil, which is then burned, releasing the CO2 again.
• By raising the credit from $17 to $36/ton and removing the distinction between storage and extraction uses, the bill creates a $19/ton federal subsidy for oil and gas producers to use captured CO2 in extraction—effectively paying them to produce more fossil fuels.

The full analysis lists 4 implications of this text.

Who stands to gain

oil and gas producers (enhanced oil recovery operators); carbon capture technology companies; industrial CO2 utilization firms