Carbon Capture & Storage: ExxonMobil’s Big Political Play

By Robert Bradley Jr. -- March 7, 2023

“ExxonMobil wants more: an ‘initial’ increase in the tax credit to around $100 per metric ton (from $85) and an extended eligibility period to 30 years (from 12 years). And ‘Provide a $10 billion grant to help develop infrastructure in Houston….'”

“Carbon capture and storage is a ‘loss leader’ for ExxonMobil to officially greenwash. For the Biden Administration, CCS is a bribe providing leverage on the biggest energy major.”

Yesterday’s post described ExxonMobil’s abandonment of its biofuels (algae) venture, wildly uneconomic after more than a decade of effort and hundreds of millions of dollars invested. But the company’s Low-Carbon Solutions division has something much bigger in process: Carbon Capture and Storage (CCS), advertised as “Providing industry solutions needed to help reduce emissions during the energy transition.” (Ouch! ExxonMobil endorsing “the energy transition” away from its major products, oil and gas.)

Background

CC&S has a free-market side, one that utilizes CO2 for enhanced oil recovery. That worked for decades, no taxpayer or U.S. Department of Energy required. But today’s initiative is not putting the CO2 to work but burying it underground for non-use with a load of taxpayer and stockholder monies. A feel-good feat of engineering that destroys value rather than creates it, from the consumer/economy viewpoint.

Subsidies for CC&S date back to the American Recovery and Reinvestment Act of 2009. [1] Different laws and IRS interpretations then created a tax credit of up to $45 per metric ton. Not enough, complained ExxonMobil and other rent-seekers. The Biden Administration stepped in with the ExxonMobil-supported Inflation Reduction Act of 2022. Wrote Tim Mullaney in ESG Impact:

The key to the sudden flurry of [CC&S] activity is the Inflation Reduction Act…. The law increased an existing tax credit for carbon capture to $85 a ton from $45, Goldman said, which will save the Exxon/CF/Enlink project as much as $80 million a year. Credits for captured carbon used underground to enhance production of more fossil fuels are lower, at $60 per ton.

But ExxonMobil now wants more: an “initial” increase in the tax credit to around $100 per metric ton (from $85) and an extended eligibility period to 30 years (from 12 years). And “Provide a $10 billion grant to help develop infrastructure in Houston by extending current U.S. Department of Energy programs beyond research, development and demonstration (RD&D).”

Here is the pitch from Erik Oswald, ExxonMobil’s vice president of strategy and advocacy, Low Carbon Solutions (created April 2022):

• Policies enacted when carbon capture and storage technology was in its infancy are now outdated and need to be adjusted. For example, the federal government has regulations in place for extracting oil and natural gas from beneath the surface, but none for injecting CO₂ far below ground for safe, secure and permanent storage.
• Policies should support project development to encourage investment. Funding available under the federal carbon capture and storage tax credit should be expanded to provide support similar to what’s available to other low-carbon technologies, such as wind and solar. Rules should be adjusted to reflect the long design and construction phases of carbon capture and storage projects.
• Governments can provide financial assistance to help build the necessary shared infrastructure, such as pipelines. As with other transportation infrastructure, like highways for example, incentives such as direct loans, loan guarantees and credit assistance can provide vital support to large-scale carbon capture and storage development.

And the outlined agenda of ExxonMobil in CC&S:

Enhance the CCS Production Tax Credit (45Q) for non-EOR (enhanced oil recovery)

• Initially increase value to ~$100 per metric ton from current $85
• Extend eligibility period to 30 years from current 12 years
• Eliminate deadline for starting construction

Ensure government approval for CO₂ storage

• Specifically allow offshore storage of CO₂ from sources other than coal
• Authorize the Bureau of Ocean Energy Management to issue leases, rights of way and pore space
• Clarify that the U.S. Environmental Protection Agency has authority for permitting CO₂ injection in subsea formations

Provide financial support for CCS infrastructure

• Provide a $10 billion grant to help develop infrastructure in Houston by extending current U.S. Department of Energy programs beyond research, development and demonstration (RD&D)
• Expand the U.S. Department of Energy Title XVII program to include the deployment of existing CCS technologies at scale
• Amend TIFIA (Transportation Infrastructure Finance and Innovation Act) to add CCS projects, or create a program dedicated to CCS

ExxonMobil states: “We have cumulatively captured more CO₂ than any other company – 120 million metric tons – accounting for approximately 40 percent of all the anthropogenic CO₂ that has ever been captured.” Well, a lot of this was for economic, not governmental, reasons, increasing oil recovery. It is the political stuff that is controversial to both sides of the political debate.

Conclusion

Carbon capture and storage is a “loss leader” for ExxonMobil to officially greenwash. For the Biden Administration, CCS is a bribe providing leverage on the biggest energy major. The good news is to be found elsewhere, specifically CEO Darren Woods’s announcement that ExxonMobil will increase oil and gas production for as far as the eye can see.

ExxonMobil has committed $15 billion in CCS by 2027 with the prospect of more. Some of this can be postponed due to opposition or reduced subsidies. Perhaps some revenue can be recouped if EOR can bring in oil revenue. But it is the taxpayer that is on the hook to Big Oil in this instance. And XOM investors need to be asking some hard questions at the next annual shareholders meeting May 25, 2023.

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[1] The 2009 Act subsidized CC&S as follows:

Investing in Carbon Capture and Sequestration.

One strategy for limiting greenhouse gas emissions is to prevent the carbon released by fossil fuel combustion from entering the atmosphere. The Recovery Act provided $2.1 billion to support initiatives that range from characterizing the carbon sequestration potential of geologic formations, to cost-sharing agreements to demonstrate advanced carbon capture and storage technologies for coal, including:

Petra Nova – W.A. Parish Post-Combustion CCS Sequestration project: DOE provided $163 million in financial assistance through the Clean Coal Power Initiative (CCPI) Round 3, which includes funding from the Recovery Act. The Petra Nova project, a joint venture between NRG Energy and JX Nippon Oil & Gas Exploration will be the first commercial-scale post-combustion carbon capture retrofit project in the U.S.

Once completed, the energy technology project will capture about 1.4 million metric tons of carbon dioxide (CO2) annually from an existing coal-fired power plant in Texas, and the captured CO2 will then be used to extract additional, hard-to-access oil from a previously depleted field 80 miles away. Construction is expected to be completed in early 2017, and already there are solvent tanks, absorber sections, and the cogeneration unit in place.

Archer Daniels Midland (ADM) Industrial CCS Project: DOE awarded $141 million to ADM for the Illinois Industrial Carbon Capture and Storage project, which demonstrates an integrated system for collecting carbon dioxide from an ethanol production plant and geologically sequestering it deep underground.  ADM finished construction on the project and began operations in 2015. It will inject an estimated 900,000 metric tons of carbon dioxide a year into the Mt. Simon Sandstone Reservoir – one of the largest and best saline aquifers in the world.