A carbon capture facility in Tracy, Calif. Carbon dioxide buried underground — often in liquid or solid form — should stay there for thousands of years to mitigate its planet-warming effects.
Credit...Jim Wilson/The New York Times

Environmentalists Fear Subsidies for Carbon Capture Won’t Be Checked

Some activists are questioning whether the federal government can accurately verify a tax program for facilities that store planet-warming gases.

by · NY Times

Lucrative new tax subsidies for companies that catch the planet-warming gas carbon dioxide and store it deep underground were one of the few aspects of President Biden’s 2022 climate legislation that the oil industry embraced.

The potential tax benefits spurred the industry, one of the largest contributors to the current climate crisis, to invest billions of dollars in the process, called carbon capture and sequestration.

Now some Democratic lawmakers, tax watchdogs and climate activists are raising concerns that the Internal Revenue Service, tasked with verifying fossil-fuel industry claims on stored carbon, lacks adequate safeguards to ensure that no companies are taking more taxpayer dollars than they qualify for. And they are equally frustrated that the I.R.S. and the Environmental Protection Agency rely on the companies’ own reported data.

The agencies do not “go out into the real world and track CO2 emissions from carbon capture facilities,” said Maggie Coulter, a senior attorney at the Center for Biological Diversity. “They’re just accepting these reports as they come in.”

The tax subsidies were boosted to reward companies that embrace carbon capture to help mitigate global warming. They also helped secure a critical vote in Congress to pass the Inflation Reduction Act of 2022, President Biden’s signature climate legislation that is designed to reduce the nation’s carbon emissions by 40 percent by 2030. While subsidies for carbon capture already existed, the law increased their value.

The Treasury Department, which oversees the I.R.S., estimates the subsidies will cost the federal government more than $36 billion in revenue over 10 years. That is nearly as much as the cost of the tax program that allows some Americans to claim tax credits for their child-care expenses.

Fossil fuel producers say the process lets them continue pumping out oil while reducing their emissions. It is also one of the few ways that cement, steel, chemical and aviation industries can reduce their carbon footprint because their energy-intensive operations depend heavily on burning fossil fuel.

Some climate advocates, and even some lawmakers who voted for the legislation, remain skeptical of the process. They are wary of the risk of leaks as well as the tax program that supports it.

The I.R.S. cannot disclose the amount of tax subsidies that each carbon capture facility receives, because of taxpayer confidentiality laws. Neither can the E.P.A. publish the amount of carbon that individual capture sites are declaring, as such data is considered confidential business information.

“It’s in the industry’s interests to have the number as high as possible, if nobody’s going to check up on them,” said David Schlissel, the director of resource planning analysis at the Institute for Energy Economics and Financial Analysis.

When the Treasury’s inspector general checked the paperwork, he found that nearly $900 million in carbon capture tax credits from 2010 to 2019 had been wrongfully claimed, as they lacked the required E.P.A. monitoring plans for carbon sequestration sites. Most of the credit claims were subsequently denied.

Tax watchdogs say the E.P.A. has data the I.R.S. could use to scan for possible tax cheats. All carbon capture facilities are required to obtain the environmental agency’s permit to drill a well for carbon storage and to report the amount of carbon they sequester.

But the agency, in response to a letter from Food & Water Watch, an environmental group, said in August that it “has no role in verifying the individual tax claims submitted to the I.R.S.”

Some lawmakers want that to change.

“To ensure actual carbon sequestration takes place, we urge your agencies to develop a set of strong guardrails,” wrote Senator Elizabeth Warren, Democrat from Massachusetts, in a letter issued Friday. She was joined by six lawmakers including Senator Angus King, independent of Maine, and Representative Ro Khanna, Democrat of California.

The Treasury Department says the extensive records of business operations that the industry is required to submit to claim tax subsidies are sufficient to deter negligence or fraud.

The I.R.S. coordinates with the Energy Department and its scientific experts to ensure accurate compliance with the complex requirements of these incentives, said Michael Martinez, a Treasury spokesman.

John Thompson, a director at Clean Air Task Force, an advocacy group for carbon capture, dismissed concerns around potential tax cheats as “a false premise” from activists who are categorically opposed to deploying the technique. Owners of new carbon capture sites must put themselves under the scrutiny of lawyers, engineers and bankers who provide financing to these projects and leave extensive paper trails, he said.

“There are lot easier ways to commit tax fraud,” Mr. Thompson said. “We have a voluntary tax system in the United States. That’s how things work.”

The legislation that Democrats including Ms. Warren passed two years ago increased the subsidy by around 70 percent, allowing $60 to $180 in tax credits per ton of carbon locked away underground.

In August 2022, the bill needed to embrace the subsidies to entice Senator Joe Manchin of West Virginia, whose state relies heavily on coal production, Mr. Thompson said. The entire legislative package includes tax credits for renewable energy, electric vehicles, hydrogen production and energy efficiency, all of which are also self-reported.

Some climate activists say U.S. taxpayers are subsidizing a practice that might do more harm than good, raising the possibility of carbon leakage. A sequestration site in Illinois recently reported a leak of carbon dioxide to a surrounding area and triggered an E.P.A. regulatory action, though carbon did not reach the surface.

According to the current I.R.S. regulations, if carbon dioxide escapes a well three years after storage, tax subsidies for that released carbon cannot be clawed back. Carbon buried underground should stay there for thousands of years to mitigate its planet-warming effects.

Susan D. Hovorka, a geologist at the University of Texas at Austin, said that when companies abide by all regulations and best practices, chances are extremely low that carbon stabilized deep underground — often in solid or liquid form — would leak.

“Most of the time, it works really well,” said Dr. Hovorka, who is principal investigator for the Gulf Coast Carbon Center, which receives both government and industry funding.

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