CCS and the 45Q tax credit

ITA

One of the main aces up the sleeve of the proponents of “Carbon Capture” (i.e. the capturing and storage of CO2 at the point of production) is the fact that it represents a valuable commodity.

The underlying thesis is that we will be able to exorcise the ghost of carbon dioxide only if we find a way to use it.

The world today uses about 230 Mton (millions of tons) of CO2: the majority (130Mton) becomes fertilizer, a small portion (30Mton) is used in sundry applications, but a significant quota is used for the so-called EOR – Enhanced Oil Recovery: in simple terms, you pump CO2 in an exhausted oilfield to extract it.

This amount is a drop in the ocean of the 13.000 Mton of emissions deriving from oil, but still, it’s something.

Michael Barnard underlines the irony of pumping 1 ton of CO2 underground to pull out about 4 barrels of oil which, once extracted and used, will cause 1,7 tons of CO2, but let’s leave that well-founded criticism aside for a moment.

As you can see from the above chart, production in the Weyburn-Midale (Canada) oilfield went through several phases: in the first, which peaked in ’65 at 45.000 barrels per day, oil was extracted essentially thanks to the field intrinsic pressure and, later, water injection, to be followed with diminishing results by several EOR technologies until they started using CO2 which brought back production to 27.000 barrels per day.

So it’s fair to say CO2 EOR works, but… how much does it cost? As we have seen already, productivity is low; 1 ton of CO2 is needed to pull out 3/4 barrels, so that the current sequestered CO2 price (about 50 euro/ton) would add substantially to the price of oil (as we write, 67 USD per barrel).

To make CO2 EOR sustainable carbon dioxide must be dirt cheap, and the only way for it to cost so little is that some kind Government ponies up the difference. It didn’t take much to find a willing volunteer: in 2018 the Congress and President Trump passed an amendment to the 45Q tax credit, elevating the amounts ($35-$50/ton) credited to those who capture and bury CO2 but, more importantly, removing the cap. Introduced as an environmentalist measure, in reality all it does is simply to make economically sustainable the CO2 EOR oil extraction.

So the true question is this: the indirect carbon tax imposed by the EU through the Emission Trading System won’t serve its purpose if another Government will simply pay it to allow its oil businesses to continue extracting oil at current prices: will the US be able to exert pressure on President Biden to reverse the horrible mistake made on the 45Q tax credit?


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