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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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How The Inflation Reduction Act Will Benefit The Oil Industry

  • The Inflation Reduction Act is the largest ever piece of legislation aimed at addressing climate change, spending a total of $369 billion on energy and climate.
  • Oil majors will likely use their expertise and large balance sheets to dominate the carbon capture space and take advantage of IRA subsidies.
  • More than 100 groups urged Congress to drop plans to provide further, targeted support to carbon utilization projects in the form of tax credits.
Carbon Capture

A few years ago, carbon capture was an eccentric, massively expensive way of reducing emissions, or so the talking point went. By 2022, carbon capture had in fact become one of the few ways in which oil companies could defend themselves against the onslaught of accusations of being the sole perpetrators of climate change. And then the Biden administration decided to support that.

For many environmentalists, the participation of the oil and gas industry in the transition is not simply impossible because of the very nature of the business but also very much unwanted. The only way oil and gas can take part in the transition, according to these activists who block traffic and vandalize works of art across Europe, is if the industry ceases to exist. Apparently, the Biden administration's opinion differs.

The Inflation Reduction Act is a piece of legislation that quickly became the target of as much praise as criticism for its generosity in funding low-carbon technologies and infrastructure. It is the biggest piece of legislation aimed at addressing climate change, stipulating spending of $369 billion in total.

Some of that money will likely go to oil companies to develop more carbon capture capacity, retrofit refineries to produce biofuels, and pursue the dream of cheap and clean hydrogen.

This week at CERAWeek, Chevron and Talos Energy said they were going to make their planned carbon capture and storage hub in Texas three times as large as originally intended.

"The market is huge," Chevron's vice president for carbon capture, utilization, and storage, Chris Powers, told media, as quoted by Reuters. "In order to meet the ambitions of the Paris Agreement, we are going to do CCUS at massive scale, with multiple hubs like this."

Exxon's Darren Woods echoed the sentiment last month. Speaking to investors, the chief executive of Exxon said, "There's a lot of activity in this space [carbon capture], a lot of interest, particularly with the IRA. I think we're very well positioned there," he said.

"This is not a game for start-ups. These are large, world-scale projects that require the kind of project expertise that we have, require the kind of size and balance sheet capacity that we have," Woods also noted. Related: Barclays Slashes Brent Oil Price Forecast To $92

Indeed, carbon capture and storage—or utilization—projects are large-scale undertakings that cost a lot of money, even though they are not as massively expensive as their opponents allege them to be. If the federal government wants to share some of that burden, the companies already active in this space would only be too happy to get the help.

According to the International Energy Agency, the transition to net zero would be impossible without carbon capture and related activities, be they reuse or storage. And it would need to be deployed on a huge scale, globally.

"The scale of the climate challenge means we need to act across a wide range of energy technologies. Carbon capture is critical for ensuring our transitions to clean energy are secure and sustainable," the IEA's Fatih Birol said at the release of the report three years ago.

This is why the IRA subsidy stipulations include carbon capture—because it appears to be critical for the transition. Yet opposition against it remains loud. More than a hundred groups earlier this month urged Congress to drop plans to provide further, targeted support to carbon utilization projects in the form of tax credits.

"This bill does not advance climate solutions, but is rather a giveaway to fossil fuel companies and other corporate polluters under the guise of climate action," the group wrote in a letter to the sponsors of the legislation, as quoted by Common Dreams.

"Promoting the utilization of captured CO2 in petrochemicals, plastics, and fuels, as your legislation would encourage, will perpetuate environmental justice harms and subsidize the oil and gas industry to do it."

According to the chief sponsor of the bill, Senator Sheldon Whitehouse, the bill would simply expand eligibility for tax credits to cover not only those active in sequestration but in the utilization of carbon dioxide.

 "Our bipartisan Carbon Capture and Utilization Parity Act would bring the value of the tax credits for carbon utilization in line with the incentives for sequestration, while supporting continued investment in carbon-neutral products," he said on his webpage.

There are plenty of uses for carbon dioxide—from making soft drinks and beer fizzy to producing synthetic, low-carbon fuels. One could go as far as to say carbon dioxide is an indispensable commodity for a range of industries just as it is indispensable for plant life—and, consequently, all life—on Earth.


Of course, carbon dioxide can - and routinely is - injected back into oil wells to stimulate production, and this appears to be the focus of the opposition against CCUS technology as a whole, because it is used to produce even more oil and gas when we should be producing less.

Yet the tide is changing in the oil and gas rhetoric. Big Oil executives have recently made statements they would hardly have dared make just two years ago. BP's and Shell's chief executives said on separate but recent occasions that oil and gas production remains necessary and will likely remain so over the long term, despite the transition to net zero.

Their counterparts in the United States, normally bolder when it comes to the essential nature of their products, have remained bold, especially amid calls from the federal government for more oil and gas production. And now both American and European supermajors plan to take advantage of the IRA billions, just like wind and solar developers and EV makers. 

By Irina Slav for Oilprice.com

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Leave a comment
  • M G on March 09 2023 said:
    Now this is smart! If the very "by-product" of oil production is a useful and necessary tool, then, at the behest of enviro groups, we shall sequester these molecules for the further advancement of society and mankind as a whole. The energy industry is simply making lemons into lemonade!

    That should, but does not please those who asked for it in the first place! They just want the oil industry eliminated, regardless.

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