The real reason why oil and gas companies are bullish on carbon capture

Two years ago, oil and gas company Occidental bought carbon capture startup Carbon Engineering. The transaction was hailed as a win-win: a climate tech company scored a significant exit, and a fossil fuel company gained a foothold in a sector that could be worth up to $150 billion by 2050.

Now, we have a better idea why Occidental was keen to pick up the pricey technology: They want to use it to pump more oil.

Previously, the company had said it would use the technology to zero out its climate impact. Yet on Occidental’s earnings call this week, CEO Vicki Hollub changed the tune, saying that injecting CO₂ into wells to force out more oil was imperative to boosting oil production.

“Taking CO₂ out of the atmosphere is a technology that needs to work for the United States, and President Trump knows the business case for this,” Hollub said. The Verge was the first to report on the comments. 

Hollub compared using CO₂ in enhanced oil recovery to fracking, the technology that sent U.S. oil and gas production skyrocketing. 

But direct air capture, the technique used by Carbon Engineering to draw CO₂ out of the atmosphere, remains expensive at $600 to $1,000 per metric ton. The Inflation Reduction Act, though, provides some significant incentives for using captured CO₂ in enhanced oil recovery, up to $130 per metric ton in 2026 if the gas remains permanently stored underground. That’s not enough to make the practice attractive on its own, but coupled with carbon credit sales, Occidental expects it can turn a profit by the end of the decade.

The Trump administration has been working to dismantle climate-related government incentives, especially the Inflation Reduction Act. But with support from companies like Occidental and ExxonMobil it’s possible that the tax credits could survive.

Carbon capture has a long and tangled history with fossil fuel companies. They first started pumping oil into dwindling wells in the 1970s, though the CO₂ came from underground deposits. In the early 1980s, pipelines started stretching out from Texas, but low oil prices prevented the technique from being widely used.

About a decade ago, NRG Energy took advantage of rising oil prices to build the country’s first carbon capture facility attached to a coal-fired power plant. Called Petra Nova, the small installation was designed to capture about a third of one boiler’s carbon dioxide and use that CO₂ to boost production at a flagging oilfield southwest of Houston.

It worked, though not as well as expected. Production rose from around 300 barrels per day to 6,000 barrels, a significant bump but half of what had been forecasted. NRG shut down Petra Nova in 2020 as oil prices cratered early in the pandemic and sold it to JX Nippon three years later.

Oil prices have since recovered, but enhanced oil recovery using CO₂ remains unattractive in part because there isn’t enough of the gas readily available — at least, not enough to raise production by the 50 billion to 70 billion barrels that Hollub predicts the technology will unlock.

Direct air capture could easily provide enough CO₂. Humans have been pumping gigatons worth of the gas into the air by burning fossil fuels over the last century and a half. It’s possible that carbon captured from the air could be used to make oil carbon negative, meaning the process of drilling the oil stores more carbon than burning it releases, though the concept needs to be studied further. 

It’s hard to know whether federal incentives for direct air capture will survive the next four years. But of all the tax credits in the Inflation Reduction Act, they might have the best chance thanks to oil companies’ desire to continue business as usual.