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 bill's conforming amendments (subsections b and c) align other tax provisions to the expanded credit, locking in the subsidy across multiple code sections and making future reversal more difficult.
• The inflation-adjustment mechanism (2025 baseline, post-2026 indexing) ensures the subsidy grows over time, compounding the fiscal cost and the incentive to use carbon capture for extraction rather than permanent storage.

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

Who it affects

The bill expands a tax subsidy for carbon capture while explicitly treating oil and gas extraction as an equally favored use. This creates a perverse incentive: companies can claim the same federal tax credit whether they permanently store CO2 or use it to extract more fossil fuels, effectively subsidizing continued oil and gas production. Citizens bear the foregone tax revenue while the climate benefit is ambiguous—CO2 used in enhanced oil recovery is not permanently sequestered and enables add

Who stands to gain

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

Named in the bill

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

Where it stands

6 cosponsors: 6 Republicans.

• Feb 5, 2025 — Introduced · Congress.gov: “Introduced in Senate”
• Feb 5, 2025 — Referred to Senate Committee on Finance · Congress.gov: “Read twice and referred to the Committee on Finance. (text: CR S668)”

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.

John Barrasso, the sponsor, reported $408,500 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.