TX - Texas Sees ‘Bonanza’ in Carbon Storage Market

With the passage of the Bipartisan Infrastructure Law in 2021 and the Inflation Reduction Act last year, Congress and the administration of President Joe Biden made a colossal bet on nascent massive-scale technological solutions to the climate change crisis.

Together, the laws dedicated more than $100 billion to atmospheric carbon reduction, including grants, loans and tax credits for renewable energy projects; hydrogen hubs; electric vehicle fleets; and carbon capture, utilization and sequestration, or CCUS. (Some prefer a simpler phrase: carbon capture, use and storage.)

It’s that last category that has excited politicians in hydrocarbon-rich Texas because it involves cashing in on a new round of federal subsidies to scale up an activity that oil producers have already been doing for a long time: pumping liquefied carbon gas into the ground.

With expanded federal tax credits for CCUS up for grabs, Texas wants to become the “global leader in carbon capture and sequestration,” in the words of state Sen. Kelly Hancock, a Republican who represents Tarrant County. But environmental advocates say the motivation of politicians like Hancock has nothing to do with fighting global warming and everything to do with harnessing federal incentives to drive a boom in industrial growth.

For decades, producers have been injecting liquefied carbon gas and other fluids deep underground in order to re-pressurize aging oil wells. The practice is called secondary recovery, or enhanced oil recovery, which enables a company to squeeze the last drops out of a nearly depleted well — like pumping up a nearly empty Super Soaker. Enhanced oil recovery is the primary “U” in the CCUS acronym. Producers claim that hydrocarbons produced using the technique are “net zero,” based on the controversial assumption that the carbon going into the ground — and, theoretically, remaining trapped there — cancels out whatever carbon emissions result from burning the extracted fuels.

The new federal incentives prioritize CCUS projects that would remove carbon gases from ambient air in an as-yet-unproven process called direct air capture and from major emissions sources, including power plants and industrial facilities, known as point-source capture. In either case, beneficiaries will need to guarantee permanent geological storage of captured carbon, either through enhanced oil recovery or through sequestration in special injection wells bored into saline formations thousands of feet under the Earth’s surface.

The scale of the Biden administration’s investment in CCUS is historic, but federal subsidies for the industry have been around for well over a decade. Congress created the 45Q tax credit in 2008 to spur investment in carbon storage as part of a multipronged effort to combat man-made climate change. Projects eligible for 45Q credits include Class VI wells — the ones used for carbon dioxide injection and permanent geologic storage in deep underground saline formations — and Class II wells used for enhanced oil recovery.

In the first decade of the 45Q program, the CCUS industry struggled to get off the ground. Congress boosted the dollar-per-ton amount of the 45Q credit in 2018, and then, in 2022, the program received a major shot in the arm with the passage of the Inflation Reduction Act. Along with hiking up the value of the 45Q credit, the act drastically lowered eligibility requirements — reducing the volume of captured carbon at a qualifying facility by as much as 96%.

Expansion of the 45Q credit and lowering the bar to entry triggered “a bonanza around carbon removal,” according to Tara Righetti, Occidental Chair of Energy and Environmental Policy at the University of Wyoming. The act also gave billions to the Department of Energy to use for loans for CCUS projects and other clean energy initiatives.  

“Project developers are clamouring to respond to U.S. Department of Energy Funding Opportunity Announcements, tie up injection rights, and secure injection permits,” Righetti said in a January 2023 blog post. “In response, states have moved forward with efforts to assume regulatory authority for carbon sequestration and secure primacy for Class VI injection wells.”

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The main difference between Class VI and Class II injection wells comes down to whether a well is used for permanent geologic carbon sequestration (Class VI) or some other purpose, such as wastewater disposal, enhanced oil recovery or temporary hydrocarbon storage (Class II). Primacy, as Righetti described it, refers to federally delegated regulatory authority over a category of injection wells. Class VI wells fall under the authority of the Safe Drinking Water Act, which is meant to safeguard underground sources of drinking water, and are consequently subject to stricter siting and construction regulations than Class II wells. At present, the Texas Railroad Commission — the state’s oil and gas regulator, which has had no jurisdiction over railroads since 2005 — has primacy over Class II injection wells, but the EPA retains authority over Class VI wells.