Tax Break Popular With Oil Companies, Conservationists Gets Boost
(Bloomberg) -- Oil companies that have claimed more than a billion dollars in tax credits for burying carbon dioxide underground just got a windfall from Congress, which expanded that incentive as part of the government spending bill signed into law on Friday.
The move culminates a six-year lobbying effort that brought together environmental groups, oil companies, equipment manufacturers and coal miners that see the credit as essential to drive investment in technology that can harness carbon dioxide as it flows out of power plants, ethanol factories, steel mills and refineries.
By broadening the tax credit, Congress is unleashing private sector spending on carbon capture operations that are vital to combat climate change, said Kurt Waltzer, managing director of the Clean Air Task Force, an environmental group.
“If we don’t have carbon capture and storage at large scale, we’re not going to limit global warming -- so we need it,” Waltzer said. “This policy is a big step forward in getting that technology on the ground much faster.”
The credit for captured carbon dioxide previously was worth as much as $20 per ton and was set to disappear after 75 million tons were claimed. That ceiling had been looming; credits for some 52.8 million tons of carbon dioxide had been claimed as of May 10, 2017, according to the Internal Revenue Service.
But the 45Q credit -- so named for its location in the tax code -- is dramatically expanding under the measure congressional negotiators folded into the government spending bill this week. Companies now will have 12 years to to claim a $50 credit for every ton of carbon dioxide that’s buried below the earth’s surface, and $35 for every ton pumped underground to help oil companies extract more crude from aging reservoirs. To qualify, companies have to start building carbon capture projects within seven years, and there’s no cap on the number of available credits.
The expansion is seen as immediately benefiting companies such as Exxon Mobil Corp., NRG Energy Inc. and Occidental Petroleum Corp., which already operate facilities capturing the gas or use carbon dioxide in enhanced oil recovery projects.
The limited pool of existing credits has discouraged wider investment, but the expansion will spur other companies to deploy existing, already demonstrated carbon capture technology, said Brad Crabtree, vice president, fossil energy, with the Great Plains Institute, a think tank that focuses on environmentally and economically sustainable energy.
“That’s enough financial certainty you can actually put that in the pro forma of a project and take it to the bank, literally and figuratively,” Crabtree said.
Companies have already claimed 45Q tax credits for storing 52.8 million tons of carbon dioxide underground, valued between $528 million and $1.2 billion, since Congress created the incentive in 2008. But they’ve also broadly ignored a federal requirement to account for where that greenhouse gas goes and develop plans for keeping an eye on it long after it’s stashed away.
Just 3 million tons of captured carbon dioxide stored underground -- all from Occidental Petroleum -- has been disclosed to the Environmental Protection Agency as part of a government greenhouse gas inventory. The IRS doesn’t identify companies claiming the 45Q credit.
Neither Exxon Mobil, which captures carbon dioxide from its operations near LaBarge, Wyoming, nor Denbury Resources, which says it received about 63 million cubic feet per day of that gas for enhanced oil recovery in 2016, have filed management plans with the EPA, reported storing CO2, or gotten a formal waiver. A representative for Exxon declined to comment; a representative for Denbury, based in Plano, Texas, didn’t respond to a request for comment.
Both Exxon Mobil and Denbury have lobbied in favor of separate 45Q legislation that would retroactively lift the carbon dioxide reporting and management requirements -- but congressional negotiators rejected that approach on Feb. 7.
Environmentalists say this accounting is essential to ensure that the greenhouse gas doesn’t escape from the ground, whether slowly, contributing to the very climate change problem the effort was supposed to help fight, or violently, posing a risk to nearby residents and wildlife.
“Without these oversight procedures in place, there can be no sure climate benefit, so we think tripling the taxpayer money to companies that have abused and manipulated the tax credit in the past doesn’t make sense in 2018,” said John Noel, a program director with Clean Water Action. “In order to adequately protect drinking water resources and to preserve the long term stability of the climate, we need to stop subsidizing the oil and gas industry.”
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