On July 4, President Trump signed into law the FY2025 budget reconciliation bill -- the so-called “One Big Beautiful Bill Act” (OBBBA) -- and with it came a fireworks display of handouts.
While lawmakers moved to sunset many of the energy tax credits created under the Inflation Reduction Act, they simultaneously expanded one of the costliest and least effective federal subsidies: the carbon capture and storage (CCS) tax credit known as Section 45Q.
CCS is already one of the most heavily subsidized “climate” technologies on the books. Expanding it makes a bad problem worse. Right now, it’s nearly impossible to verify how much carbon is actually captured and stored under 45Q, whether it stays underground, and -- most importantly -- whether it has any impact on climate change. At the very least, taxpayers deserve to know what they’re paying for and whether they’re getting their money’s worth.
Section 45Q already offered generous subsidies to power plants and industrial facilities for capturing CO2 they emit and either storing it underground or using it in industrial applications. The Biden-era Inflation Reduction Act raised the maximum payout, lowered the capture threshold, and extended the credit through 2032. That was just the warmup!
The OBBBA takes a step further by dramatically increasing the payout for enhanced oil recovery -- the process of injecting CO2 into depleted oil wells to produce more oil -- to $180 per ton, the same rate paid for permanent geological storage.
Oil, gas, and ethanol companies had already launched a slew of projects to take advantage of generous Biden-era subsidies. Now, under the OBBBA expansion, they are slated to reap even more taxpayer dollars. The Joint Committee on Taxation estimates this expansion alone will cost taxpayers an additional $14 billion over the next decade, on top of 45Q’s original price tag of $36 billion.
The true costs are likely much higher because facilities can claim the credit for 12 years if they begin construction before 2033 -- there’s no deadline for when they must actually begin operating.
That’s on top of the billions of taxpayer dollars already poured into CCS with little to show for it. From FY2010 to FY2023, Congress directed at least $2.8 billion to CCS through the Department of Energy’s (DoE) Office of Fossil Energy and Carbon Management. Another $12.1 billion is being doled out under the 2021 infrastructure package. To his credit, President Trump’s administration has since canceled a chunk of that funding, correctly concluding the ventures “failed to advance the energy needs of the American people, were not economically viable, and would not generate a positive return on investment of taxpayer dollars.” Good call. The industry’s track record is dismal. DoE-backed projects like FutureGen and Kemper fizzled. More than a decade of federal investment has failed to bring CCS to meaningful scale.
Congress should have followed suit and cut CCS support in the OBBBA. The projects the expanded 45Q credit will fund are no more worthy of support than the ones President Trump already canceled. Instead, it did the exact opposite. With OBBBA’s boosted payout for enhanced oil recovery, using captured CO2 to extract more oil is now the most profitable way for the CCS industry to claim 45Q tax credits. Oil and gas companies will continue profiting from the sale of that oil, while also reaping billions from the expanded tax credit.
Let’s be clear: the subsidies big oil and gas are reaping for enhanced oil recovery represent nothing more than windfall profits via taxpayers. These companies were already using carbon capture for a profit even without government support. 45Q is corporate welfare -- paid for by middle-class taxpayers.
Worse still, the expanded credit lacks even the most basic guardrails: no emissions or storage benchmarks, no independent verification, no real taxpayer protections. From 2010 to 2019, more than $890 million worth of 45Q credits -- around 90 percent of all claims -- failed to comply with EPA reporting rules. Talk about lack of transparency and waste, fraud, and abuse.
In addition to the $180-per-ton payout, the OBBBA extends a generous tax shelter to the CCS industry, allowing companies to structure themselves as tax-shielding partnerships -- allowing much of the industry to avoid corporate income taxes entirely.
No policy this costly, unproven, and ripe for abuse should be continued -- let alone expanded. Lawmakers handed industry a blank check -- and taxpayers will foot the bill.
H. Sterling Burnett, Ph.D., (hsburnett@heartland.org) is Director of the Arthur B. Robinson Center on Climate and Environmental Policy at The Heartland Institute, a non-partisan, non-profit research organization.
Autumn Hanna (autumn@taxpayer.net) is Vice President of Taxpayers for Common Sense, a national nonpartisan budget watchdog based in Washington, DC.
Image: Eric Kounce