| A tax credit boosted by President Joe Biden’s climate law is encouraging some oil companies to pump more crude out of dying wells. And green groups are not happy. As I write today, Biden’s Inflation Reduction Act provides a major incentive for a process called enhanced oil recovery, in which oil producers inject carbon dioxide underground to pump more crude out of existing wells. The process can increase a well’s oil production by 15 to 50 percent — while, supporters hope, keeping CO2 out of the atmosphere. The fossil fuel industry says enhanced oil recovery could help make oil’s greenhouse gas emissions neutral or negative. But environmental groups and taxpayer watchdogs have raised concerns that the climate law’s boosted tax credit will be little more than a subsidy for pumping out more oil. “They might be sequestering carbon dioxide when they’re extracting the oil, but that oil is eventually going to produce more CO2,” said Preet Bains, a research analyst for the Environmental Integrity Project. Oil companies have used enhanced oil recovery since the 1970s. CO2 is flushed into wells and comes back up with oil, before it is recycled and reinjected back underground. Some CO2 stays underground with each injection, requiring operators to buy more to replace it. Eventually, very little oil and very little CO2 comes back out, leading companies to shut the well in — and seal the CO2 out of harm’s way. But little independent federal data exists on how much carbon dioxide is injected underground and how much stays there — the oil companies self-report that information to the Internal Revenue Service and the Environmental Protection Agency. Most enhanced oil recovery projects have not reported data to the federal government at all, opting not to file voluntary paperwork to claim the tax credit since it began under the Obama administration. But the 2022 climate law supercharged the tax credit, vastly upping the amount companies could claim for each metric ton of CO2 they permanently store. The Treasury Department is expected to soon release final guidance on the boosted credit, which companies will be able to claim this year. Several companies have already announced projects that will allow them to take advantage of the tax credit. Occidental CEO Vicki Hollub has said she expects her company to use enhanced oil recovery to produce 12,000 barrels a day by 2026 in the Permian Basin, a major oil hub in New Mexico and West Texas. Environmental groups say the process generates more CO2 than it sequesters once the oil that is produced is ultimately burned. Tax groups also worry about oversight. A 2020 investigation by the Treasury Department’s inspector general found that the IRS awarded nearly $894 million in the so-called 45Q tax credits to companies that didn’t comply with EPA reporting rules. The IRS can’t verify companies’ claims on the ground, and EPA’s data collection program was never meant to be used for tax purposes, said Paul Blackburn, an attorney and energy policy adviser with the oil industry watchdog nonprofit Bold Alliance. There is also little collaboration between the two agencies, thanks in part to the confidential nature of tax returns. “There’s a regulatory gap and lack of oversight in what could be a multibillion-dollar source of revenue for the government,” he said.
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