Bloomberg editors endorse NEORI’s production tax credit recommendations

Few policy options can be a win-win for both political parties, as well as industry, environmental advocates, and labor. Similarly, increasing oil production and decreasing carbon emissions are thought of as conflicting goals. Yet, a solution may be on the horizon. On February 28, the National Enhanced Oil Recovery Initiative (NEORI) released its recommendations for advancing enhanced oil recovery with carbon dioxide (CO2-EOR). NEORI is a broad coalition of industry, state officials, labor, and environmental advocates.

While NEORI participants might not agree on many energy and environmental issues, each participant recognizes the vast potential of CO2-EOR and worked toward producing a set of policy recommendations for its expansion. CO2-EOR already produces 6 percent of U.S. oil, and it could potentially double or triple existing U.S. oil reserves. In comparison to other options, CO2-EOR offers an extraordinarily large potential expansion of domestic oil production, while also advancing an important environmental technology.

What is CO2-EOR?

CO2-EOR is a process that uses CO2 to revitalize oil production in mature oil fields (How CO2-EOR Works). Using carbon capture technology, industrial facilities and power plants capture their CO2 emissions before they enter the atmosphere. Captured CO2 is sent via pipelines to oil fields, where it is injected underground to bring oil to the surface. Injected CO2 either is reused to produce more oil, or it remains underground in the oil formation, where it is expected to remain safely sequestered (CO2-EOR Safety). This method of oil recovery is “enhanced” because conventional oil recovery only extracts 30 to 50 percent of an oil field’s reserves using different production methods.

Overall, CO2-EOR can extend the lifespan and beneficial use of an oil field by 30 years. If CO2-EOR is fully developed in the United States, it could prevent billions of metric tons of CO2 emissions, reduce U.S. dependence on foreign oil imports, and provide jobs and economic growth to local communities across the country (CO2-EOR Environmental Benefits, CO2-EOR Economic & Jobs Benefits).

Organized and staffed by the Center for Climate and Energy Solutions (C2ES) and the Great Plains Institute (GPI), NEORI developed its recommendations over a seven-month period before releasing them at a launch event on Capitol Hill. The recommendations immediately drew praise from a bipartisan and geographically diverse group of Members of Congress, including Sen. Max Baucus (D-Montana), Sen. Kent Conrad (D-North Dakota), Sen. John Hoeven (R-North Dakota), Sen. Richard Lugar (R-Indiana), Rep. Rick Berg (R-North Dakota), and Rep. Mike Conaway (R-Texas) (Congressional Statements of Support for NEORI).

What is NEORI recommending? 

Carbon capture is a promising technology in the effort to reduce greenhouse gas emissions, but it has not yet been fully commercialized and remains expensive to deploy at certain industrial facilities and power plants. To jumpstart carbon capture projects across the country, NEORI suggests federal- and state-level action to support CO2-EOR. At the federal level, NEORI recommends reforming an existing tax credit for CO2 sequestration (NEORI 45Q Modifications) and enacting a new and larger federal production tax credit program for CO2-EOR (NEORI CO2-EOR Report). The availability of production tax credits will aid carbon capture project developers in obtaining financing and getting their projects under construction. Once first-of-a-kind and next generation carbon capture projects are completed, the cost of future carbon capture projects is expected to fall. NEORI projects that within 10 years, the new oil produced from CO2-EOR will ultimately bring in much more revenue to the federal government than it pays out in tax credits. To minimize any near-term budget impact of this new tax credit, NEORI identified ways for Congress to design the tax credit to prevent cost overruns. Finally, at the state-level, NEORI identified model policies for individual states to implement to encourage CO2-EOR development.

In a time of partisan disagreement on energy issues and federal- and state-level budget constraints, CO2-EOR is a solution that different political and economic interests can support. Going forward, NEORI will work with Members of Congress and state officials to implement its recommendations, as well as continue education and outreach with stakeholders across the country.

Patrick Falwell is Solutions Fellow at C2ES.