Donald Trump significantly increases US tax credits for carbon capture

Donald Trump approves a substantial increase in US tax credits aimed at carbon capture and utilization in oil projects, significantly reshaping economic outlooks for the energy sector and drawing attention from specialized investors.

Share:

US President Donald Trump has signed legislation significantly strengthening tax incentives related to the capture and utilization of carbon dioxide (CO₂), particularly linked to oil extraction. This measure primarily targets Enhanced Oil Recovery (EOR), a technique involving injecting captured CO₂ into mature oil reservoirs to enhance their productivity. The tax credit awarded to companies employing this method now reaches $85 per ton of captured CO₂, an increase of $25 compared to the previous regulation. This adjustment aligns EOR incentives with those provided for traditional geological carbon sequestration.

Increased credits for direct air capture

The legislation also introduces increased credits for projects employing direct air capture technologies, now set at $180 per ton of CO₂, up from the previous $130. This substantial rise aims to improve the economic viability of these costly technologies, previously limited by financial constraints. Simultaneously, alternative industrial projects using captured CO₂, such as synthetic fuel production or beverage carbonation, also benefit from the increased credit of $85 per ton. These new provisions are drawing significant attention within the US energy sector, particularly due to their potential economic impact.

Adjustments to the 45Q tax credit occur within a federal budgetary context marked by reductions in direct aid previously allocated to other renewable energy technologies. Several proposals discussed in earlier versions of the legislation, such as the transferability of tax credits or new indexing of rates for inflation, were abandoned, thus altering initial economic forecasts for the affected actors. This reform of carbon taxation comes as the oil sector seeks to enhance the profitability of its existing operations, within an economic environment still characterized by volatile crude prices.

Economic and regulatory challenges of the measure

While industry participants generally show interest in these new measures, several experts estimate their impact will primarily benefit projects already near profitability thresholds. Given the high technical and financial barriers to entry, these incentives alone are unlikely to attract significant numbers of new entrants into EOR operations. Projects already planned or underway, however, could decisively leverage these enhanced tax credits to improve short-term profitability.

Moreover, the new fiscal framework could simplify regulatory processes linked to obtaining permits necessary for building infrastructures dedicated to transporting and storing captured CO₂. This potential administrative simplification is seen as a decisive factor further strengthening the economic attractiveness of carbon capture technologies among investors in the petroleum sector. These actors are currently closely evaluating the concrete implications of the regulatory changes on their operational plans and future development strategies.

Implications for the US oil market

These tax adjustments come at a time when American oil producers are closely monitoring their overall economic competitiveness, heavily influenced by tight operational margins. Increased tax credits could thus enable operators to optimize existing installations, particularly in traditional oil-producing regions where EOR is commonly employed. However, the long-term consequences of this fiscal policy for the broader US carbon capture market remain to be accurately assessed, particularly regarding the overall investment impact on these costly technologies.

TotalEnergies seals partnership with NativState to develop thirteen forestry management projects across 100,000 hectares, providing an economic alternative to intensive timber harvesting for hundreds of private landowners.
Drax’s generation site recorded a 16% rise in its emissions, consolidating its position as the UK’s main emitter, according to analysis published by think tank Ember.
Graphano Energy announces an initial mineral resource estimate for its Lac Saguay graphite properties in Québec, highlighting immediate development potential near major transport routes, supported by independent analyses.
Carbon2Nature, a subsidiary of Iberdrola, partners with law firm Uría Menéndez on a 90-hectare reforestation project in Sierra de Francia, targeting carbon footprint compensation for the legal sector.
North Sea Farmers has carried out the very first commercial-scale seaweed harvest in an offshore wind farm, supported by funding from the Amazon Right Now climate fund.
The UK's National Wealth Fund participates in a GBP 59.6 million funding round to finance a CO₂ capture pipeline for the cement and lime industry, targeting a final investment decision by 2028.
The Bayou Bend project, led by Chevron, Equinor, and TotalEnergies, aims to become a major hub for industrial carbon dioxide storage on the US Gulf Coast, with initial phases already completed.
US-based Chloris Geospatial has raised $8.5M from international investors to expand its satellite-based forest monitoring capabilities and strengthen its commercial position in Europe, addressing growing demand in the carbon market.
The federal government is funding three carbon capture, utilisation and storage initiatives in Alberta, strengthening national energy competitiveness and preparing infrastructure aligned with long-term emission-reduction goals.
The European Union unveils a plan aimed at protecting its exporting industries from rising carbon policy costs, using revenue generated from its border adjustment mechanism.
Colombia is experiencing a significant drop in voluntary carbon credit prices due to a major oversupply, destabilizing the financial balance of associated communities and projects.
France and Norway sign an agreement facilitating the international transport of CO₂ to offshore geological storage facilities, notably through the Northern Lights project and the CO₂ Highway Europe infrastructure.
Frontier Infrastructure Holdings has signed an offtake agreement with manager Wild Assets for up to 120 000 tonnes of BECCS credits, underscoring the voluntary market’s growing appetite for traceable, high-permanence carbon removals.
Global carbon capture and offset credit markets could exceed $1.35 trillion by 2050, driven by private investment, technological advances, and regulatory developments, according to analysis published by Wood Mackenzie.
The Australian carbon credit market is experiencing temporary price stabilization, while the emergence of new alternative financial instruments gradually attracts corporate attention, subtly altering the commercial and financial dynamics of the sector.
Norway has launched a major industrial project aimed at capturing, maritime transport, and geological storage of CO₂, mobilizing key energy players and significant public subsidies to ensure economic viability.
A €21mn European grant, managed by EIB Global, will fund Egyptian projects aimed at cutting industrial emissions and boosting recycling, while a related €135mn loan is expected to raise additional climate investments.
Stockholm Exergi begins construction of a CO₂ capture facility in Stockholm, integrated with the expansion of Northern Lights in Norway, reaching a total storage capacity of 5 million tonnes per year by 2028.
Global emissions coverage by carbon pricing systems reaches 28%, driven by expanding compliance markets, where demand nearly tripled within one year, according to a World Bank report.
Vietnam initiates a pilot carbon market targeting steel, cement, and thermal energy industries to prepare for nationwide regulation starting in 2029.