Federal Shift Puts Carbon at the Core of Oil Recovery

Bigger 45Q credits draw fresh interest in CO₂ storage and carbon driven oil recovery

5 Jul 2025

The US oil sector is reassessing the economics of carbon-based enhanced oil recovery after the federal Section 45Q credit was revised to raise support for projects that use captured carbon dioxide. The change, introduced under the One Big Beautiful Bill Act (OBBBA) in July 2025, aligns the value of CO₂ stored through EOR with that placed in conventional geologic storage.

For point-source projects entering service after the law takes effect and meeting wage and apprenticeship requirements, the headline credit of about $85 per tonne now applies across both pathways. The adjustment represents a notable increase for EOR and has pushed operators to re-evaluate projects that previously fell short of internal returns. Mature fields are drawing fresh interest, while developers are expanding early-stage assessments of potential CO₂ supplies and suitable storage formations.

Occidental has positioned itself as an early mover, arguing that stronger 45Q support makes “industrial-scale carbon management realistic at oilfield scale”. Analysts expect ExxonMobil and Chevron to step up their own reviews in response to the new structure, which they say brings federal incentives closer to the capital needs of capture networks, pipelines and storage hubs. The shift is also prompting greater attention to measurement, reporting and verification requirements for CO₂, a trend that could lift demand for monitoring tools and specialist service providers. Selective joint ventures and acquisitions are anticipated as companies seek access to storage sites and technical expertise.

Several constraints may shape the speed of deployment. CO₂ pipeline capacity remains limited, while the number of permitted storage sites could lag rising interest. Storage performance varies widely by formation, adding further uncertainty. Industry observers say such gaps may encourage technical and commercial innovation as developers compete to lower project risk. Additional provisions in OBBBA, including new restrictions on foreign entities and updated rules for credit transferability, are leading operators and financiers to revisit portfolio structures and governance.

Service companies report higher activity around screening studies, early engineering and long-term monitoring systems. Investors are reviewing carbon-focused strategies with an eye to business models that can reliably monetise the enhanced credit. Communities near legacy fields are also tracking possible employment gains, infrastructure upgrades and safeguards linked to expanded CO₂ transport and storage.

As the revised policy settles in, companies are preparing for a market in which carbon management and oil production are more closely connected. The stronger 45Q framework is expected to accelerate project evaluation and support wider use of EOR as a platform for large-scale CO₂ storage.