US Bill Could Eliminate Tax Credits for Oil Recovery

Section 45Q of the US Internal Revenue Code offers a tax credit for each metric ton of carbon captured and sequestered.

It ranges from ~$12 up to ~$50 for every ton of carbon captured and stored underground. These credits can be claimed even if the carbon is used to push oil out underground.

California lawmaker Ro Khanna would like to change that.

His new bill is called the “End Polluter Welfare for Enhanced Oil Recovery Act.” If passed, carbon capture used for oil production would no longer receive a tax credit.

Over 95% of carbon capture and storage in the US is used for enhanced oil recovery. So, if Khanna’s bill were to pass, it would affect many companies.

Khanna told Reuters, “We shouldn’t be subsidizing enhanced oil recovery (EOR) if this is going to be increasing carbon.”

Environmentalists agree. In fact, twenty environmental groups have expressed their support for this bill.

They feel this practice defeats the purpose of carbon capture by increasing the use of fossil fuels. In the past, critics had felt this way about carbon offsets too. However, increased regulation and improved verification methods have changed that.

The bill’s co-sponsors include Rail Grijalva of Arizona and Mike Quigley of Illinois. Like Khanna, both are democrats. Grijalva is also chair of the House Natural Resources Committee.

There are deep divisions within the US House and Senate concerning environmental initiatives.

Some senators have discussed eliminating part of 45Q that requires facilities to capture at least 75% of their emissions to qualify for the tax credit. Senator Joe Manchin of West Virginia is said to be part of these discussions.

Khanna believes his senate colleagues are going about this the wrong way and hopes his bill will be adopted into the Senate’s version of the Build Back Better Act (BBBA).

Since Khanna’s bill varies significantly from the 45Q expansion discussed by the house, its chance of being signed into law is slim.

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