The Inflation Reduction Act (IRA), known as President Biden’s climate law, has gained unexpected backing from the oil and gas industry. This is surprising because many believe the law aims to hurt these companies. As the November elections approach, major oil firms are urging Republican candidate Donald Trump not to eliminate parts of the legislation that benefit them.
The Wall Street Journal reported that Occidental Petroleum’s CEO spoke directly to Trump during a campaign event, advocating for the preservation of IRA funding for carbon capture technologies. Other companies, such as Exxon and Phillips 66, are also showing support for the IRA.
Occidental has a strong interest in one technology promoted by the IRA: carbon capture, particularly direct air capture. The company, which is the first U.S. oil producer to commit to achieving net-zero emissions, is building what could be the largest direct air capture facility in Texas. Despite skepticism about the technology’s effectiveness, it is clear that carbon capture is expensive.
Occidental’s facility in Texas is projected to cost $1.3 billion. The company has secured a deal to sell carbon credits from this facility to Microsoft, allowing Microsoft to report lower emissions. Occidental plans to seek additional buyers to make the project financially viable, alongside IRA funding.
Exxon is also investing heavily in carbon capture and hydrogen, both of which are key areas funded by the IRA. Last year, Exxon spent $4.9 billion to acquire Denbury, a company that operates a carbon dioxide pipeline network. They have also made agreements with four companies to capture their carbon dioxide emissions. Exxon claims this effort is equivalent to removing around 2 million gasoline-powered cars from the road, which is more than the total number of electric vehicles sold in the U.S. in 2023.
Chevron is another company making significant investments in hydrogen and carbon capture. Phillips 66, which recently approached Trump about the IRA, aims to establish itself in the production of sustainable aviation fuels. All these projects require substantial financial backing from the federal government.
Mark Lashier, the CEO of Phillips 66, shared with the Wall Street Journal that some aspects of the IRA are essential for the industry. “There are elements of the IRA that the general industry says would be bad to unwind,” he stated. “Everybody is working out their contingency plans for either administration.”
One might expect a Trump administration to benefit the oil and gas sector. However, this assumption may be simplistic. A Trump presidency would follow a Biden administration focused on regulating oil and gas production. This has pushed companies to explore alternative investments and commit resources to technologies like carbon capture.
Carbon capture technology is costly. Occidental’s first attempt at this technology did not succeed and was not mentioned again until Bloomberg reported that a facility built 13 years ago never operated above a third of its capacity. Critics argue that the high costs of carbon capture make it unsuitable for the energy transition, similar to green hydrogen.
Producing sustainable aviation fuels (SAF) is also expensive, costing about three times more than traditional jet fuel. The limited supply of feedstock, primarily used cooking oil, hampers efforts to reduce production costs.
In summary, investing in the energy transition involves significant risks and costs. Even major oil companies prefer to share these risks with government support for the transition. However, once investments are made, they cannot easily be withdrawn if a new, anti-transition administration takes over. This creates an ironic situation where Big Oil has good reasons to support parts of the Inflation Reduction Act.
Senator Kevin Cramer from North Dakota emphasized the need for caution regarding the IRA, stating, “If we win, we need to take a scalpel, not an ax, to the IRA.” This shows that even Republican and pro-oil states appreciate the transition subsidies. States like Oklahoma and South Carolina are also eager for a share of IRA benefits, regardless of the election outcome. Yet, a critical question remains: what will happen when the funding runs out?
You Might Be Interested In