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Inflation Reduction Act: A Game Changer for Carbon Capture

The IRA is why this website exists.


The Inflation Reduction Act (IRA), signed into law in August 2022, sets ambitious targets for emissions reduction and (more importantly) allocates significant funding for clean energy technologies. For the purposes of my world, the most notable aspect of the IRA is its impact on the carbon capture and enhanced oil recovery (EOR) industries. The new law substantially increases tax credits for carbon capture from point sources and direct air capture (DAC), making it possible to start profitable businesses in the field. In particular, the tax credit of $130/ton for direct air capture with EOR can be combined with California's existing tax credit of $200/ton, providing a total compensation of $330/ton. This makes processes developed by many different proposed direct air capture technologies highly attractive. For example, Occidental Petroleum has publicly stated that they expect their carbon capture costs to be below $400/ton, and I estimate based the published academic work of the partner Carbon Engineering that costs of $250-$275/ton are reasonable in the medium term..


The IRA also allocates tax credits for point source capture, at $85/ton. This makes point source capture unquestionably economic, whereas DAC is still somewhat experimental. The tax credits will last for 12 years, and it is not ridiculous to speculate that some point source capture projects could pay down their entire expenditures within that period. This is going to happen.


Whether this is a big deal or not is unclear. The IRA aims to reduce emissions by 40% below 2005 levels by 2030, with supplementary measures expected to help achieve a 50% reduction by 2035. CO2-enhanced oil recovery (CO2-EOR) could play a significant role in meeting these goals, as it is an existing method for carbon sequestration that can even lead to carbon-neutral or carbon-negative oil production. According to the National Petroleum Council, with current technology, the storage capacity for CO2 associated with CO2-EOR is 55-105 Gt (gigatons) onshore US, which could increase to 203-325 Gt with advances in technology and infrastructure. These numbers usually go up over time. Multiplying 100 Gt by $180/ton is a big number, and that number could get bigger still.


But that's a long term hope, and will require an unfathomable amount of infrastructure. Expansion of EOR for carbon sequestration into more than just lab experiments and pilot projects will depend on the development of necessary infrastructure. Senator Manchin's permitting reform deal, a requirement for his support of the IRA, could help streamline the permitting process for connecting industrial centers with CO2-EOR opportunities.


How fast will this all happen? We will see, but the incentives are promising. At minimum, the Inflation Reduction Act has the potential to be a game changer for carbon capture and enhanced oil recovery. By offering higher tax credits and fostering a more favorable regulatory environment, the Act will drive the adoption of carbon capture technologies and contribute to the ambitious emissions reduction goals set by the US government, and attract technology players from around the world who recognize that the US is the place to launch.

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