The panel proposed equalizing the tax credit for using captured carbon in oil recovery with the USD 85/metric ton credit for permanently storing carbon.
A US Senate panel released a bill proposing to match the tax credit for capturing carbon emissions in oil recovery to the USD 85/metric ton credit for permanently burying emissions.
In its draft bill, the finance committee proposed changes to the 45Q tax credit, part of the 2022 Inflation Reduction Act (IRA). The House version of the bill, which passed by one vote in May, keeps the credit for enhanced oil recovery projects at USD 60/metric ton.
The US Internal Revenue Service (IRS) has released the inflation adjustment factor for the carbon oxide sequestration credit under IRC section 45Q for 2025 (Notice 2025-25, IRB 2025-20).
The change stems from a proposal by Wyoming Senator John Barrasso, a Republican, to put EOR projects on equal footing with carbon sequestration. The proposal gained backing from senators representing other oil-producing states, including North Dakota and Louisiana.
Carbon capture and sequestration (CCS) technologies are intended to reduce carbon dioxide (CO2) emissions from fossil fuel-fired power plants and other large industrial sources. The tax credit for carbon sequestration—often referred to using its Internal Revenue Code (IRC) section, Section 45Q—is intended to incentivise investment in CCS.
Under the IRA, former President Joe Biden’s climate law, tax credits for permanent removal were higher than for enhanced oil recovery (EOR) to prevent carbon capture technologies from encouraging more oil drilling, which could undermine efforts to limit emissions.
With its two direct air capture projects in Texas, Occidental plans to store carbon underground and use CO2 to recover oil permanently, claiming to make barrels more environmentally friendly. Occidental refused to comment on the Senate change.
Chevron and Exxon are other oil companies involved in carbon capture and Direct air capture (DAC).
