CCUS and U.S. Oil & Gas: How Carbon Capture and Tax Incentives Are Driving Decarbonization

Introduction: A New Era for Carbon and Capital

The U.S. oil and gas industry is at a crossroads. On one side, it faces mounting pressure to reduce greenhouse gas emissions and align with global climate goals. On the other, it must continue to provide energy security and economic stability in a transitioning global energy system.

Amid this balancing act, Carbon Capture, Utilization, and Storage (CCUS) is emerging as a vital solution for hard-to-abate emissions—particularly from sectors like power generation, refining, cement, and steel. Simultaneously, ESG (Environmental, Social, and Governance) investing has moved from trend to expectation, compelling companies to rethink how they operate and report on sustainability performance.

Federal legislation like the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) has amplified the momentum, offering generous tax credits and funding to jumpstart large-scale CCUS deployment. In parallel, innovative financial tools—such as sustainability-linked loans (SLLs) and green bonds—are helping energy players secure capital while tying returns to emissions targets.

This article provides a deep dive into CCUS projects in the U.S. oil and gas sector, the tax and policy landscape driving their expansion, and the economic forces shaping the next decade of decarbonization.

CCUS Projects in U.S. Oil & Gas: A Technology on the Rise

What Is CCUS?

Carbon Capture, Utilization, and Storage refers to the process of capturing CO₂ emissions from industrial sources (or directly from the atmosphere), transporting it, and then either utilizing it in applications like Enhanced Oil Recovery (EOR) or storing it permanently underground.

The CCUS chain typically involves:

• Capture: CO₂ is extracted from emission sources (flue gas or direct air).
• Compression and Conditioning: The CO₂ is purified and compressed for transport.
• Transport: Most commonly via pipelines; other options include truck or ship.
• Utilization or Storage:
  • EOR: Injecting CO₂ into depleted oil fields to recover more oil.
  • Storage: Injecting CO₂ into deep saline aquifers or exhausted oil/gas fields for permanent sequestration.

While CCUS is technically complex, it builds on decades of experience in the oil and gas sector—especially in EOR, which has been practiced since the 1980s.

Key CCUS Projects Reshaping U.S. Oil & Gas

As of 2025, the U.S. is home to 13 operational CCUS facilities and over 65 additional projects in development. These range from small demonstration pilots to major regional hubs.

1. Valero / BlackRock / Navigator CO₂ Pipeline

• Scope: A 1,200-mile pipeline network across the Midwest.
• Capacity: Up to 5 million tonnes of CO₂ per year (Mtpa).
• Purpose: To transport CO₂ from ethanol plants and industrial emitters for EOR and permanent storage.
• Impact: One of the largest CO₂ pipeline projects in the world; a backbone for Midwest decarbonization.

2. EnLink Midstream / Banpu Barnett Shale Project

• Region: Texas.
• Focus: Capturing CO₂ from natural gas processing facilities and storing it underground.
• Significance: Demonstrates the viability of non-EOR applications, essential for achieving net-zero targets.

3. Sempra Hackberry Carbon Storage Hub

• Location: Louisiana.
• Design Capacity: 2 Mtpa.
• Storage Type: Saline aquifer.
• Goal: Integrate CCUS with LNG export infrastructure to lower lifecycle emissions.

4. Heidelberg Materials – Mitchell Cement Plant (Indiana)

• Sector: Cement (a major CO₂ emitter).
• Significance: One of the first U.S. projects applying CCUS to cement production.
• Impact: Positions the sector for carbon-neutral construction materials.

5. Other Notable Hubs in Development

• Dakota Carbon Center, CarbonSAFE projects, and ExxonMobil’s Baytown CCUS hub aim to store tens of millions of tonnes annually.
• These hubs offer shared infrastructure to reduce costs and serve multiple emitters.

3. Tax Incentives & IRA 45Q Enhancements: Fueling the CCUS Surge

3.1 Section 45Q: The Backbone of CCUS Economics

Section 45Q of the Internal Revenue Code provides tax credits for every metric ton of CO₂ captured and either utilized or stored. Before the IRA reforms, the credit levels were:

• $50/ton for CO₂ permanently stored.
• $35/ton for CO₂ used in applications such as EOR.

These levels, while significant, were often not enough to make many projects financially viable—especially those outside of EOR, which has its own revenue stream from additional oil recovery.

3.2 IRA Upgrades: Supercharging the 45Q Credit

The Inflation Reduction Act of 2022 dramatically expanded and improved the 45Q credit, making CCUS significantly more attractive.

Enhanced Credit Rates:

Application	Pre-IRA	Post-IRA
Permanent geological storage	$50/ton	$85/ton
Utilization (e.g., EOR)	$35/ton	$60/ton
Direct Air Capture (DAC) + Storage	N/A	$180/ton
DAC + Utilization	N/A	$130/ton

Other IRA Enhancements:

• Lower minimum thresholds: Smaller facilities now qualify, enabling broader participation.
• Direct pay option: Allows entities without tax liabilities to receive payments like grants—crucial for developers and startups.
• Transferability: Tax credits can be sold or transferred, creating a secondary market and improving liquidity.
• Labor provisions: Projects meeting wage and apprenticeship standards can earn even higher credit values.

These reforms, coupled with supportive DOE and EPA oversight, have unlocked billions in potential investment across the CCUS value chain.

3.3 Push for Expansion and Political Dynamics

While the IRA marked a huge leap, policy debates continue:

• Senate proposals (2024-25) have aimed to increase the EOR credit from $60 to $85/ton, aligning it with storage rates. This is supported by oil-state lawmakers and major producers.
• Opposition from environmental groups and fiscal conservatives argue that:
  • These incentives disproportionately benefit fossil fuel producers.
  • They may delay the transition to renewables.
  • They could allow for “greenwashing” where companies use CCUS to prolong oil production.

Nevertheless, bipartisan support remains strong in energy-heavy states like Texas, North Dakota, and Louisiana—ensuring a stable policy backdrop for near-term CCUS deployment.

CCUS Challenges and Opportunities: What Lies Ahead?

Economic & Technical Barriers

• High Capital Costs: Inflation and materials cost spikes have increased project budgets by ~30%.
• Infrastructure Gaps: The U.S. lacks sufficient CO₂ pipeline networks and permitted storage sites.
• Permitting Delays: Environmental reviews and public opposition can stall projects for years.
• Technology Maturity: While proven, CCUS is still evolving—especially in sectors like cement and steel.

Opportunities and Strategic Advantages

• IRA-Backed Profitability: With $85/ton storage credits, many projects are now economically feasible even without EOR.
• Industrial Decarbonization: CCUS offers a path to net-zero for industries that cannot electrify.
• Job Creation: DOE estimates suggest over 100,000 high-paying jobs could result from CCUS investments.
• Exportable Expertise: The U.S. could become a global leader in CCUS technologies and services.

Conclusion: Carbon Capture, Climate Capital, and the Energy Future

Carbon Capture, Utilization, and Storage is no longer a fringe climate technology. Thanks to strong federal policy, aggressive tax incentives, and the evolving ESG investment landscape, CCUS is rapidly becoming a central pillar of the United States’ decarbonization strategy.

While challenges remain—from financing gaps to community trust—there is now a viable economic case for CCUS across multiple sectors. Oil and gas companies that embrace these technologies early can position themselves not just as energy providers, but as climate innovators.

In the years ahead, CCUS will not only determine how quickly the U.S. can reach net-zero—but also who leads in the energy economy of the future.