Carbon Capture in the Crosshairs: Key Risks, Trade-offs, and the Road to Responsible Deployment

1. Introduction

Carbon Capture, Utilization, and Storage (CCUS) has progressed from experimental technology to a foundational element of the United States' industrial decarbonization strategy—especially within oil and gas, cement, power generation, and other hard-to-abate sectors. Landmark legislation such as the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) has created substantial incentives for CCUS deployment. Enhanced 45Q tax credits, transferability options, and direct pay mechanisms now make large-scale projects financially feasible.

However, CCUS deployment introduces a complex array of risks, trade-offs, and socio-political challenges that extend beyond technology. These factors are crucial to project viability, community acceptance, and the credibility of the U.S. climate agenda.

This article explores the key considerations and risks related to CCUS, summarizes important conclusions, and provides recommendations for oil and gas firms, financiers, and policymakers.

2. Enhanced Oil Recovery vs. Permanent Sequestration: A Climate Trade-off

One of the most debated issues in CCUS is the balance between using captured carbon for Enhanced Oil Recovery (EOR) versus permanent geological sequestration.

2.1 The Dilemma

• Enhanced Oil Recovery (EOR) involves injecting captured CO₂ into mature oil reservoirs to increase oil output, a practice common in the U.S. since the 1980s. It offers near-term economic benefits by boosting oil production.
• Permanent sequestration refers to storing CO₂ permanently in deep geological formations such as saline aquifers or depleted reservoirs, aligning more closely with long-term net-zero emissions targets.

2.2 What’s at Stake

• Critics argue that supporting EOR may unintentionally prolong fossil fuel dependency, undermining the overall climate benefit of CCUS.
• The Inflation Reduction Act currently offers higher tax credits for permanent sequestration compared to EOR. However, recent legislative efforts aim to equalize these credits, which may shift investments toward oil-producing regions with established EOR infrastructure.
• This potential policy parity could increase carbon capture projects linked to fossil fuel extraction rather than permanent carbon removal.

Key takeaway: Policymakers and industry must carefully balance economic incentives and environmental outcomes to ensure CCUS supports genuine climate progress.

3. Financial Transparency and Credit Misuse: The Accountability Imperative

While CCUS offers a promising emissions reduction pathway, it also poses risks related to financial transparency and misuse of incentives.

3.1 The 45Q Misuse Case

• Historical reports show that hundreds of millions of dollars in 45Q tax credits were claimed improperly, often without adequate verification of actual CO₂ capture and storage.
• The Internal Revenue Service (IRS) has since increased oversight and implemented stricter requirements for third-party verification of CO₂ volumes.
• Developers must now comply with robust measurement, reporting, and verification (MRV) protocols to qualify for credits.

3.2 Investor Sensitivity

• Institutional investors, particularly those focused on environmental, social, and governance (ESG) criteria, are increasingly sensitive to risks related to greenwashing.
• Transparent disclosure and independent auditing of CCUS operations are becoming essential to attract and maintain capital.

Learning insight: Reliable verification systems are critical to building trust, ensuring compliance, and securing sustainable financing for CCUS projects.

4. Policy Durability: Post-2024 Political Volatility

The long-term success of CCUS depends heavily on the stability and durability of the policy environment underpinning it.

4.1 Why It Matters

• The IRA and IIJA offer multi-decade incentives, but these depend on future political landscapes.
• With potential changes in administration after the 2024 elections, there is concern over:
  • Possible reduction or redirection of climate-related funding.
  • Delays or changes in IRS and Department of Energy guidance.
  • Regulatory and permitting uncertainties.

4.2 What Might Survive

• Some 45Q credits, especially those benefiting oil-producing states through EOR, may continue receiving bipartisan support. However, uncertainty remains regarding the longevity and strength of these programs, posing risks to project planning and financing.

Risk factor: CCUS projects typically require long-term investments with payback periods spanning decades. Political uncertainty threatens to undermine investor confidence and project viability.

5. Community Engagement and Environmental Justice

The expansion of CCUS infrastructure is increasingly encountering public scrutiny and opposition, particularly from local communities and environmental justice advocates.

5.1 The “S” and “G” in ESG

While environmental (E) benefits dominate CCUS discussions, social (S) and governance (G) factors are critical for equitable and responsible deployment:

• Communities express concerns about CO₂ pipeline safety, land use, and impacts on property values.
• Projects often affect disadvantaged areas with existing environmental burdens.
• There is a growing demand to involve communities in the decision-making process from project inception through operation.

5.2 Emerging Best Practices

• Use of Community Benefit Agreements to share project benefits.
• Transparent and participatory permitting processes.
• Open communication regarding safety protocols and environmental monitoring.

Lesson for developers: Securing social license to operate is essential. Ignoring community concerns can delay or halt projects entirely.

6. Conclusions: The New Reality of CCUS

CCUS has matured into a mainstream strategy essential to achieving U.S. decarbonization targets. Its progress is supported by robust tax incentives, federal grants, and innovative sustainable finance tools such as green bonds and sustainability-linked loans.

6.1 Drivers of Growth

• Enhanced 45Q credits, including options for credit transfer and direct pay.
• Federal investments via the IIJA and Department of Energy grants.
• A growing array of ESG-aligned financial products that reduce capital costs.

6.2 Competitive Advantage for Oil & Gas

Oil and gas companies use CCUS to:

• Lower borrowing costs by meeting ESG criteria.
• Expand into carbon management and storage services.
• Hedge against tightening future emissions regulations.

6.3 Remaining Challenges

• The tension between EOR and permanent storage remains unresolved.
• The future of CCUS incentives is uncertain amid political shifts.
• Robust oversight is essential to maintain integrity and public trust.

Bottom line: CCUS’s success depends as much on political, social, and financial governance as on technology.

7. Recommendations

7.1 For Oil & Gas Companies

• Develop comprehensive CCUS strategies tied to specific ESG key performance indicators (KPIs).
• Integrate CCUS projects into sustainability-linked loans, green bonds, and other financial instruments.
• Ensure compliance with verification standards and transparently report CO₂ capture and storage data.

7.2 For Financiers and Investors

• Require independent third-party verification before funding CCUS projects.
• Support blended financing structures that combine tax credits, grants, and debt.
• Incorporate social and governance metrics, including community engagement and environmental justice considerations, into investment decisions.

7.3 For Policymakers and Regulators

• Strengthen oversight and auditing of 45Q credit claims.
• Maintain a clear distinction between credits for EOR and permanent sequestration to avoid undermining decarbonization goals.
• Mandate meaningful community consultation and engagement processes.
• Provide funding to build local capacity for participation in CCUS decision-making.

8. Final Thoughts

CCUS stands at a pivotal moment. It has the technology, financial support, and policy backing necessary to be a major climate solution. Yet, its future hinges on navigating complex challenges beyond technology alone—balancing economic incentives with environmental integrity, ensuring political stability, securing social acceptance, and maintaining financial transparency.

Only by addressing these challenges holistically can CCUS fulfill its promise as a tool to mitigate climate change while supporting sustainable economic growth and community well-being.