This month, a work group of fourteen states, led by Governors Matt Mead (R-WY) and Steve Bullock (D-MT), issued a report entitled Putting the Puzzle Together: State & Federal Policy Drivers for Growing America’s Carbon Capture and CO2-EOR Industry. Carbon-Dioxide-Enhanced Oil Recovery (CO2-EOR) is a technique in which CO2 is injected into mature oil fields in order to recover remaining crude. Currently, CO2-EOR accounts for about 4% of domestic oil production.
The State Work Group advocates increased use of CO2-EOR and argues that pairing CO2-EOR with carbon capture and storage can provide the United States with a long-term, low-carbon way of using abundant domestic fossil energy resources. The report explains that for every 2.5 barrels of oil produced, CO2-EOR can safely and permanently store an average of one metric ton of CO2 underground. However, currently less than a quarter of the CO2 used for CO2-EOR comes from power plants and industrial sources. The vast majority comes from geologic sources. The State Work Group argues that state and federal policies can be used to encourage both CO2-EOR and the commercialization of carbon capture, utilization, and storage.
The report identifies a number of challenges, including the high capital costs, low revenues from CO2 sales because of low oil prices, and limited availability of debt and equity for CO2-EOR projects due to policy uncertainty and market risks. To address these challenges, the report recommends that Congress pursue a targeted package of federal incentives that include expanding existing tax credits for CO2 sequestration, establishing federal price stabilization contracts for the CO2 sold from capture facilities to EOR operators, and making carbon capture eligible for tax-exempt private activity bonds and for master limited partnerships. The report also explains that state policies can complement these recommended federal policies, particularly changes to state tax policies that favor the capture of CO2 from power plants and industrial sources and the use of CO2 to produce oil through EOR.
The State Work Group plans to issue additional policy recommendations in the future.