With billions in taxpayer subsidies up for grabs, energy companies are looking to the bottom of the Gulf of Mexico as a dumping ground for carbon dioxide, despite facing more expenses and greater risks of leaks and blowouts than burying the pollutant onshore.

Companies including ExxonMobil, Chevron, and Repsol have been scooping up hundreds of thousands of acres in the Gulf, including in state waters in Texas and Louisiana, for potential carbon waste injection sites. One recent study also contemplates burying pollution off the coasts of Delaware, Maryland, and New Jersey.

Companies remain focused on state waters – three nautical miles from shore in most states but nine nautical miles in Texas – because the federal government has been slow to adopt regulations that would allow for the permanent disposal of CO2 beneath federal waters.

Fossil fuel giants are lured by taxpayer subsidies, known as 45Q, which offer $85 per metric ton of carbon dioxide captured and injected underground, either for permanent disposal or to force more oil and gas out of the ground. The subsidies, which were expanded by the Biden Administration-based legislation in 2022 and then again by Trump last year, are meant to incentivize companies to bury CO2 pollution to keep it out of the atmosphere and avoid warming the climate. As of June, the EPA and state agencies were reviewing applications for 387 carbon disposal wells nationwide.

Major oil companies have been looking to capitalize on these federal funds by using Gulf waters as permanent CO2 storage sites. At three offshore storage hubs off the coast of Texas alone, companies are planning to inject a combined 140 million metric tons of CO2. That would be a huge increase from the approximately 4 million metric tons stored offshore globally today, according to the Institute for Energy Economics and Financial Analysis.

“45Q really underpins this buildout,” said Anika Juhn, an IEEFA analyst and author of multiple recent reports on offshore sequestration. “It’s a corporate give-away to provide this enormous credit for projects that would not otherwise be making these corporations any money.”

ExxonMobil had planned to store CO2 on hundreds of thousands of acres in the Gulf. But a hold-up in proposed federal regulations that would have allowed carbon disposal at the sites of federal oil and gas leases has left state waters as the industry’s easiest path to development. In Texas state waters near Houston, ExxonMobil is leading 14 companies as part of a proposed CO2 capture and sequestration “hub” designed to store up to 100 million metric tons by 2040 in both onshore and offshore sites.

Another example is the Bayou Bend Carbon Capture and Sequestration Hub proposed in Texas state waters in Chambers and Jefferson counties, east of Houston. Chevron is developing the project along with French company TotalEnergies and Denver-based Carbonvert, with plans for multiple underground storage sites that span across 100,000 acres onshore, as well as 40,000 acres offshore.  The companies say they could store up to 1 billion tons of CO2 from industrial facilities in Houston, Beaumont, and Port Arthur.

Carbonvert is also working with Spanish firm Repsol, Korean company Posco International, and Japanese trading company Mitsui to develop a separate 140,000-acre lease in Texas state waters off Corpus Christi. The companies plan to inject more than 20 million metric tons of CO2 each year into underground formations 5,000 feet below the water’s surface.

Offshore storage projects of such scale have little precedent anywhere in the world. In the Danish North Sea, a partnership involving 23 industry, research, and academic organizations plan to begin injecting a more modest 400,000 metric tons of CO2 per year sometime this year. Two other European projects – near Rotterdam and in the Aegean Sea – are also expected to come online this year or next.

Offshore CO2 injection poses serious safety risks, including blowouts that form bubbles of CO2. The gas, which is heavier than air, could linger on the water’s surface – potentially asphyxiating people and shutting down machinery, according to a 2024 report on CO2 injection safety by Wild Well Control, an oilfield emergency response company. This could make reboarding an offshore platform during a CO2 blowout “extremely challenging.”

“This means that generators, engine-driven equipment such as cranes, and heavy machinery may cut out or fail to start,” the report states. “Pump units used to pump kill fluid into the well may not be able to function if the intakes are placed in areas with high levels of CO2.”

Scott Eustis, community science director with advocacy group Healthy Gulf, said the hundreds of abandoned oil and gas wells drilled in state waters, including in the areas leased for CO2 injection, also present pathways for CO2 to return to the surface.

“Let's focus on hiring back thousands of oil workers to plug the broken wells of the Gulf, not to deal in financial speculation and the technical nightmare of high-pressure waste injection,” Eustis said.

Whether the technology is good for the climate long-term also remains to be seen. So far, most of the CO2 captured from industrial sites (54 percent as of 2023, according to the EPA), has been used to force more oil and gas out of the ground, a process known as enhanced oil recovery, which is bad for the climate. Most of the rest has been used to carbonate beverages, manufacture pulp and paper, make fire-fighting equipment, and to fabricate metals.

Companies are now proposing a massive shift to permanently storing millions of tons of carbon in the earth, where it is supposed to stay for hundreds of years. According to some projections, CO2 leakage rates from underground storage reservoirs must remain at 1 percent or less over a thousand years to be worth investing in compared to cleaner technologies.

Preventing leaks requires companies to monitor their injection sites for “hundreds of years post-injection,” according to a recent IEEFA analysis. “In contrast, typical oil and gas projects focus on known risks during the initial phases of project operations and encompass much shorter time scales.”

ExxonMobil, which in 2023 acquired CO2 pipeline operator Denbury, had been putting together nearly 1 million acres of leases in federal waters in the Gulf of Mexico comprised mainly of old, depleted oil and gas fields. The company had led lobbying efforts to attempt to persuade federal regulators to create a smooth legal pathway to use legacy oil and gas leases for carbon storage, according to Carbon Herald.

But the path to store CO2 in federal waters appears to be blocked – for now. The Department of the Interior in early July placed regulations, first proposed in 2022, that would have allowed oil and gas drilling leases instead for carbon storage, on its “inactive” list, leaving no clear time frame for when the new rules might be completed.

ExxonMobil last week notified the Department of the Interior that it would not renew 163 leases in federal waters in the Gulf of Mexico cumulatively spanning more than 850,000 acres, according to Energy Intelligence.

Eustis, with Healthy Gulf, called Exxon’s announcement a “welcome relief in 2026, a year of an above-average Gulf Dead Zone.” Oxygen levels in parts of the Gulf often drop in the summer due to algae blooms caused by water pollution. The potential for CO2 to leak and dissolve into the water column, displacing oxygen, will only lead to “deader Dead Zones,” he said.

The regulatory uncertainty leaves state waters as the primary hotspot for offshore CO2 sequestration. For one contemplated storage project off the New Jersey coast, injecting 16.7 million metric tons of CO2 per year could allow companies to claim $19.5 billion in 45Q tax credits over 12 years, IEEFA reported.

Given the operational uncertainty and costs involved, it might seem surprising for oil and gas companies to move forward with offshore CO2 storage projects. Injecting CO2 offshore is up to four times more expensive than injecting CO2 on land, said Juhn, with IEEFA.

Companies remain interested because working with a single landowner – a state or federal government – is much easier than a “patchwork quilt of landowners” a company would have to stitch together to complete a pipeline and injection wells onshore, Juhn said. Onshore, “landowners, understandably, are skeptical about these projects,” Juhn said.

In Louisiana, the CO2 storage industry has faced a bipartisan backlash after companies proposed dozens of storage projects across the state. One project in Louisiana state waters involved piping CO2 captured from a proposed ammonia plant in Ascension Parish, south of Baton Rouge, to Lake Maurepas, a brackish estuary west of New Orleans used for hunting, fishing, and boating.

That proposal drew opposition both from left-leaning environmental groups skeptical of the project’s alleged climate benefits, as well as conservatives concerned about the use of taxpayer funds, private property rights, and impacts to Lake Maurepas. Developer Air Products announced in late June that it was cancelling the project.