Although the climate bill recently signed by President Joe Biden provides billions of dollars in additional tax incentives for carbon capture projects, about half of the carbon sequestration credits claimed by industry over the last decade were later revoked by the IRS because the companies failed to monitor or verify their capture of the greenhouse gas as required by EPA, according to public records.
From 2010 to 2019, companies claimed $894 million in federal tax credits for injecting carbon dioxide into the ground, “even though they did not have an EPA-approved MRV (monitoring, reporting and verification) plan in place,” IRS Commissioner Charles P. Rettig wrote to Senator Bob Menendez of New Jersey on June 29, 2020. “The IRS has pursued enforcement against some of those taxpayers, disallowing approximately $531 million of those credits.”
The Inflation Reduction Act of 2022 has been widely praised by environmentalists because it takes unprecedented action to fight climate, including by providing federal incentives for electric vehicles, wind and solar power, and improved energy efficiency.
But also tucked into the bill – as part of a compromise to win the vote of coal-state Senator Joe Manchin – are also billions of dollar in additional tax credits for carbon capture and sequestration. This technique has been criticized by some scientists and environmental justice advocates for using taxpayer dollars to subsidize the pumping of carbon dioxide into rock formations to enhance the extraction of more oil and gas.
Other scientists and environmentalists see promise in the future of carbon capture – not for fossil fuel production, but for reducing the carbon footprint of industries like cement factories and steel mills that cannot be replaced but whose chemical processes cannot avoid releasing greenhouse gases.
At least 29 proposed oil, gas, and petrochemical facilities across the U.S. –including seven liquefied natural gas (LNG) terminals in Louisiana and Texas; 12 nitrogen fertilizer plants across the U.S.; and three petrochemical and plastics plants – are planning to use carbon capture and sequestration techniques, according to a review of public records in the Oil &Gas Watch database.
These impending projects, and the billions of dollars in federal tax credits pouring into the field, raise the question: does carbon capture really work? Does pumping carbon dioxide into the ground really hold promise to stabilize the climate? Or is it just a financial lifeline for polluting industries?
A 2021 report by the Congressional Research Service explains the history of carbon capture in the U.S. The IRS tax credit program that the Biden Administration and Congress are now planning to expand – called “45Q” – was launched in 2008 during the George W. Bush Administration. By 2021, 12 large projects were using 45Q federal tax credits to capture carbon dioxide from the smokestacks of industry and inject the gas into the ground.
Eleven of these 12 companies were injecting the CO2 for what is called “enhanced oil recovery.” Companies used a chemical process to capture carbon dioxide gas produced by natural gas processing plants, hydrogen fuel production facilities, or fertilizer production operations, and then inject the CO2 into rock formations to force more natural gas or oil out of the ground. The 12th project injects carbon dioxide from a corn ethanol production plant in Decatur, Illinois, into an underground sandstone formation not to extract natural gas, but to trap and bury the CO2 there.
For years, carbon capture was promoted by Republicans – and even President Barack Obama – as a climate-friendly path to “clean coal.” But the Congressional Research Service report lists only one effort to use carbon sequestration for a coal-fired power plant, and it was an expensive failure. A company called Petro Nova installed a $1 billion carbon sequestration system at the W.A. Parish coal-fired power plant southwest of Houston (pictured at the top of this article) and piped the gas 81 miles to the West Ranch oil field, where the CO2 was injected to force oil to the surface. But the project suffered chronic mechanical problems and routinely missed its targets before it was shut down in 2020.
Senator Robert Menendez of New Jersey, a Democrat on the Senate Finance Committee that oversees the IRS, in 2019 demanded an investigation of IRS 45Q program because he was concerned it was being abused by fossil fuel companies.
The IRS declined Menendez’ request for a list of the names of the companies receiving the tax subsidies. But at the Senator’s request, the U.S. Department of the Treasury Inspector General for Tax Administration sent a letter in 2020 summarizing the IRS' oversight and investigation of the program. The Inspector General reported that 10 companies claimed the lion’s share of the federal taxpayer subsidies, totaling more than $1 billion from 2010 to 2019. Of these 10, seven did not have monitoring, reporting and verification (MRV) plans required by EPA to make sure the carbon dioxide was actually being captured and secured in the earth, according to the Inspector General’s Office.
“The IRS has taken action against four of the 10 taxpayers who improperly claimed over $1 million of 45Q credits,” the Treasury Inspector General wrote. “…The disallowed credits total approximately $531 million.” That meant the companies had to pay the money back to the federal government.
In reaction to the Inspector General’s letter, Senator Menendez called for “a suspension of the 45Q Credit for enhanced oil recovery operations until an investigation can be completed into the industry’s misuse of the credit.”
But then, when Senator Manchin, the Democrat from West Virginia, insisted that the 45Q tax credit be included and expanded in the Inflation Reduction Act, Menendez and all his fellow Democrats voted in favor of the act on Aug. 8, because that was the only way to achieve the more significant greenhouse gas reductions in the overall package.
“The Inflation Reduction Act was a carefully crafted compromise that will ultimately help reduce greenhouse gas emissions by 40 percent by 2030,” Menendez’s office said in a statement to Oil & Gas Watch News. “Senator Menendez continues to have concerns that the 45Q credit has a history of being abused by the oil and gas industry, and will work to hold fossil fuel companies—including enhanced oil recovery operations—accountable. He will be closely monitoring implementation of the new 45Q credit, and looks forward to working with Treasury and the IRS to ensure that no credits have been improperly claimed under the current or previous iterations of 45Q.”
The politics of carbon capture are complex and riddled with compromise. For example, some Republicans – notably House Minority Leader Kevin McCarthy – have been advocating for more government subsidies for carbon capture and storage.
Republican Senator Bill Cassidy of Louisiana on Feb. 16, 2022 even threatened to block all Senate confirmations of any EPA officials until the Biden Administration approved Louisiana’s requests to permit carbon sequestration wells. Such wells are a big part of the Louisiana’s business community’s plans for the future -- but they cannot move ahead without a green light from EPA. At least 12 major oil and gas-related projects are proposing carbon capture and sequestration in Louisiana as part of their operations, including LNG terminals and petrochemical and plastics plants, according to public records in the Oil & Gas Watch database.
“Louisiana is the ideal location to store carbon underground and lower emissions,” Cassidy insisted.
But then, when it came time to vote in August, Cassidy and every other Republican in the Senate and the House – including McCarthy – voted against the carbon capture tax subsidies in the Inflation Reduction Act, because they denounced the overall package as “government out of control.”
Charles Harvey is a professor at the Massachusetts Institute of Technology who co-authored an op-ed in The New York Times on Aug. 17 about carbon capture headlined: “Every Dollar Spent on This Climate Technology Is a Waste.”
In an interview with Oil & Gas Watch News, Harvey said that carbon sequestration tax subsidies are – in general – a bad idea that only prop up polluting industries and waste valuable taxpayer dollars that should be spent subsidizing clean technology, like electric cars and solar power.
But – in the case of the recent climate bill – Harvey argued that the subsidies were perhaps a necessary evil as a political giveaway to Senator Manchin, who would not vote for the Inflation Reduction Act without concessions to help his allies in the oil and gas industries.
Harvey likened the Democrats throwing a favor to the fossil fuel industry in the form of the carbon capture tax credit as a kind of political payoff or “corruption” – but one that was minor compared to the overall victory of the climate provisions in the Inflation Reduction Act.
“A 10 percent corruption tax – it could be worse,” Harvey said. Overall, he said the Inflation Reduction Act “will help in a lot of ways, supporting more wind and solar, more electric vehicles, all kinds of things….The rest of the bill is great. But this part is rotten.”
Not all scientists agree with Harvey. To get a sense of the range of opinion, Oil & Gas Watch News interviewed top experts on carbon capture at MIT, Rice, Stanford, Cornell and Northwestern universities.
Many argued that government subsidies to inject carbon dioxide (CO2) into the ground to extract yet more oil and gas is harmful for the climate. But, they said, trapping carbon in rock formations or salt caverns, or on the bottom of the sea, may be pragmatic, useful and necessary for other industries, like steel factories, cement plants and advanced biofuel refineries.
Some also point to the future promise of technology that can suck CO2 out of the atmosphere directly and then pipe it underground in a semi-liquid form or bind the CO2 with mineral formations. Such technology is still too expensive to be practical today, but it could be needed in the future.
Jefferson Tester, a professor of sustainable energy system sat Cornell University, said he was encouraged by visiting colleagues in Iceland who are capturing CO2 from the air. On a small and preliminary scale, Tester said they have dissolved the captured CO2 in water, and then injected it into basaltic rock formations, creating a permanent storage system.
“I’ve always viewed carbon capture from fossil fuels –whether its coal or oil or natural gas – as sort of a transition from where we are now, to where we are going to need to be for the long term, which will be more sustainable, renewable fuels and perhaps nuclear power,” said Tester.
Anthony R. Kovscek, a professor of petroleum engineering at Stanford University who studies carbon sequestration, did not dismiss the concerns about abuse of the U.S. carbon sequestration tax credits by the oil industry raised by Senator Menendez.
“Clearly, fraudulent tax claims, even just the appearance of fraudulent claims, is of concern for an incentive program this big,” Kovscek said in an email. “The IRS and the EPA do not seem to have been exactly synchronized on documenting carbon capture and sequestration …I believe that this disconnect between qualifying for tax credits (IRS) and environmental regulation (EPA) resulted in a lot of confusion by everyone.”
But he added that there is a more important big picture. If the world is ever going to achieve the challenging goal of net-zero carbon emissions, we are going to have to use all possible tools – including carbon sequestration, Kovscek argued.
“There are many emissions that are difficult to abate today and will remain difficult in the future. For instance, cement manufacture. You can replace all of the energy in cement manufacture with zero-carbon energy and your cement plant is still going to produce many tonnes of CO2. This is because minerals such as limestone need to be heated to over 1000 (degrees Celsuis) to make cement. The mineral itself consumes oxygen and produces CO2 upon heating,” Kovscek said. “We can wait for someone to come up with a process that produces less CO2, or we can capture and store the emissions from cement plants now. I prefer now.”
Wil Burns, a professor at Northwestern University who edited a book titled “Climate Geoengineering,” said he is confident that the science of carbon sequestration will work. He said several pilot projects around the globe have demonstrated that carbon dioxide – after it is captured from smokestacks or drawn from the atmosphere, and then compressed into a semi-liquid state – can then be piped into old coal mines, or beneath caprocks or other geological formations, so that the CO2 will remain mostly trapped for hundreds of years, with little risk of escape.
The much bigger problem, Burns said, is that this process is very expensive and energy intensive. He doubts that – even with the new Biden Administration’s tax subsidies – carbon sequestration will be enough to keep coal or oil and gas alive, because it is not economically competitive. He said solar power and wind power are rapidly becoming cheaper than fossil fuels.
An even thornier issue, Burns said, is that the cement plants, steel mills and biofuel factories that might be able to use carbon sequestration tend to be located hundreds of miles away from the correct geological formations that could securely store semi-liquefied carbon dioxide. This gap will require the construction of thousands of miles of carbon pipeline beneath farms and residential properties across the U.S., which will likely trigger legal challenges from both liberals and conservatives, Burns said.
“Can you simply condemn land if farmers resist putting pipelines under the land? Can you use eminent domain?” Burns asked. “Or do you have to negotiate with them or divert those pipelines if they simply say no? ... What are the questions of liability should there be accidents? A lot of that is still being worked out.”
This kind of grass-roots opposition to the infrastructure of carbon capture is already erupting in Iowa. Three companies, including Archer Daniels Midland, are encountering fierce resistance to a “climate friendly” pipeline from a coalition of environmentalists, farmers and indigenous people. They oppose pipes across their land to transport carbon from ethanol and fertilizer plants to nearby states that have the right rock to store the gas.
“The big challenge will lie in the fact that the locations where the geology is well suited for carbon capture don’t precisely line up with where carbon capture might best occur in the future,” said Daniel Cohan, a professor at Rice University and author of the recent book, “Confronting Climate Gridlock.” “We could see the same sort of disputes play out in the cement industry. Because cement gets manufactured in so many different places, and inherently many cement plants won’t be located near storage. So for carbon capture to scale up, there would need to be a lot of pipelines. And that is likely to get the same kind of opposition that has been opposing natural gas pipelines and powerlines in the past.”