The budget deal includes a big gift to the fossil fuel industry

The bill increases the amount of money fossil fuel companies get if they sell carbon for use in oil and gas extraction.

(CREDIT: Helen H. Richardson/The Denver Post via Getty Images)
(CREDIT: Helen H. Richardson/The Denver Post via Getty Images)

Buried deep in the budget deal that Congress passed late Thursday night is an expansion to a tax credit that climate groups worry will incentivize more oil and gas drilling, while costing taxpayers $2.8 billion each year.

Currently, federal tax code gives companies that capture and sequester carbon a tax credit for every metric ton of carbon that is captured and stored — $20 per metric ton if that carbon is stored deep underground, and $10 per metric ton if that carbon is sold to fossil fuel companies, which then pump the carbon underground to help access hard-to-reach oil and gas deposits. But the new budget bill changes the way that companies are compensated for carbon storage, giving companies $50 per metric ton that is stored underground and $35 per metric ton that is sold to fossil fuel companies for oil and gas extraction.

Climate experts generally agree that to avoid the worst consequences of global warming, the world doesn’t just need to decrease carbon emissions — we need to actually go carbon negative by removing more carbon from the atmosphere than we pump into it. One way to do that is through carbon capture and storage, which takes carbon and buries it deep underground.

But carbon capture and storage is currently both hugely expensive and technologically untested — one of the most famous attempts at carbon capture and storage, a planned coal plant that would have captured and stored carbon emissions, was scrapped after running years behind schedule and billions over budget.

Proponents of increasing tax credits for carbon storage have argued that the previous amounts were not high enough to incentivize companies to research and develop cheap, viable methods of permanently storing carbon. The measure introduced Thursday night enjoyed bipartisan support in the Senate, with Senator Sheldon Whitehouse (D-RI) and Heidi Heitkamp (D-ND) joining Senators Shelley Moore Capito (R-WV) and John Barrasso (R-WY) in pushing the increase in credits forward.


But critics argue that by raising the amount of money that companies get for selling carbon to fossil fuel companies for extraction, the credits essentially incentivize more oil and gas extraction, negating any climate benefit created by sequestering carbon.

According to an analysis by the Department of Energy, because companies would receive a tax credit in addition to the money they make from selling the trapped carbon, that option is more financially attractive than simply sequestering the carbon underground, even if the credit for that is raised to $50 per metric ton.

Proponents of increasing carbon sequestration tax credits argue that even selling carbon to oil and gas companies for extraction could have climate benefits, because it would offset oil production elsewhere while still removing carbon from the atmosphere. But critics argue that in a world facing climate change, no fossil fuel extraction should be incentivized. Oil Change International, which opposed expanding the tax credits, estimates that the resulting increase in oil and gas extraction would result in an additional 400,000 barrels of oil production per day by 2035, which would mean an additional 50.7 million metric tons of carbon dioxide emissions annually. The same analysis found that increasing the carbon storage tax credit would likely cost taxpayers $2.8 billion annually.

“When so many regular Americans still struggle to pay for healthcare, put food on the table, and make ends meets, burying massive new handouts to the oil industry in an unrelated spending bill is obscene,” Janet Redman, U.S. Policy Director at Oil Change International, said in a press statement. “Supporters on both side of the aisle of this massive giveaway to oil companies should be ashamed. The rest of us should be furious.”