Exxon Touts Carbon Capture as a Climate Fix, but Uses It to Maximize Profit and Keep Oil Flowing
Sprawled across the arid expanse of southwestern Wyoming is one of the world’s largest carbon capture plants, a hulking jumble of pipes, compressors and exhaust flues operated by ExxonMobil.
The oil giant has long promoted its investments in carbon capture technology—a method for reducing greenhouse gas emissions—as evidence that it is addressing climate change, but it rarely discusses what happens to the carbon captured at the Shute Creek Treating Facility.
The plant’s main function is to process natural gas from a nearby deposit. But in order to purify and sell the gas, Exxon must first strip out carbon dioxide, which comprises about two-thirds of the mix of gases extracted from nearby wells.
The company found a revenue stream for this otherwise useless, climate-warming byproduct: It began capturing the CO2 and selling it to other companies, which injected it into depleted oil fields to help produce more oil.
In 2008, when concerns about climate change led Congress to pass a tax credit meant to encourage companies to capture and store carbon dioxide, Exxon was presented with another way to make money from the technology. The massive amounts of carbon dioxide captured at its Wyoming facility put the oil and gas giant in a position to claim more credits under the tax break than any other company.
In the ensuing years, Exxon may have claimed hundreds of millions of dollars in tax credits, according to estimates based on publicly available data from the Internal Revenue Service, the Securities and Exchange Commission, and a global think tank that tracks the technology.
Meanwhile, the company, through its lobbyists, has fought relentlessly to do away with a requirement that companies claiming the credit submit monitoring plans to the Environmental Protection Agency, oversight meant to ensure that the captured carbon dioxide does not escape into the atmosphere.
Environmental advocates say Exxon’s actions offer a prime example of how petroleum companies have used their adoption of carbon capture to deflect demands for more far-reaching action to combat climate change—like reducing fossil fuel production—while at the same time exploiting the technology for maximum profit. Such examples, they say, highlight the risks of relying on the carbon removal method to play a significant role in curbing global warming.
Carbon capture and storage, or CCS, is the rarest of policy breeds: a climate change solution with bipartisan support. Republicans promote the technology as a central piece of any GOP climate plan. Joe Biden, the Democratic nominee for president, has endorsed it, too.
But the most significant policy support for the technology is the tax credit, known as 45Q, for capturing emissions. The emissions, in almost all cases, are then used to increase oil production. Now, as the Trump administration is finalizing rules for an expanded version of the credit, advocates say the administration has capitulated to industry lobbying led by Exxon that would weaken oversight of the process. In June, the IRS proposed that companies be allowed to avoid being regulated by the EPA, a step that could also allow companies to avoid publicly disclosing details of their carbon capture operations.
Environmental advocates say there is good reason to require rigorous oversight: One depleted oil field that has received carbon dioxide from Exxon’s Wyoming facility, for example, repeatedly spewed unknown volumes of the gas to the surface, most likely through old oil wells. In 2016, a nearby school was forced to close after carbon dioxide was detected at dangerous levels inside the school.
Supporters of the carbon capture credit, including some environmental groups, say it will help the technology gain widespread commercial support. But critics say the credit amounts to a subsidy for oil companies masquerading as climate policy, throwing a lifeline to an industry struggling amid a historic crash in oil prices that only leads to producing more oil.
“This is how the oil industry continues to win,” said John Noël, a senior climate campaigner with Greenpeace USA who has been following the credit for years. “They get in the weeds, they have access and influence that the normal public doesn’t, and they’re able to manipulate the tax process and the regulatory process and manipulate it in their favor. And that’s been happening since the first oil well.”
Exxon spokesman Casey Norton would not say whether the company had made claims under the carbon capture credit or answer other questions about the tax incentive. He pointed to various research efforts the company is involved in, adding that “ExxonMobil is the world-leader in carbon capture, sequestering more carbon in the last 20 years than any other company.”
Because the IRS does not disclose the names of companies that claim the credit, it is impossible to know whether Exxon has claimed it or how much it may have claimed. But Noël, as well as other advocates and Congressional staff members, said they believed that Exxon had claimed a large share, perhaps the largest, of the $1 billion awarded under the credit over the past decade. In April, the Treasury Department’s Inspector General for Tax Administration said that nearly $900 million worth of those credits did not comply with EPA requirements, because the companies failed to submit monitoring plans.
Alex Doukas, who leads the Stop Funding Fossils program with Oil Change International, an advocacy group, estimated that Exxon may have claimed at least $190 million through 2014, and possibly much more. He based the figure on publicly available data about the amount of carbon dioxide that existing facilities can capture, compiled by the Global CCS Institute, and compared that with the total amount of carbon dioxide that companies claimed to capture under the credit, using figures published by the IRS. The estimate is likely to be conservative, because it assumed that most plants were operating at full capacity.
Data from one of the CCS plants came from an SEC filing and was not available beyond 2014. But InsideClimate News, in replicating Doukas’ analysis, found additional public data for 2015, which added about $50 million to the estimate of how much Exxon may have claimed over the seven-year period. Operating at full capacity, the Exxon plant could capture enough carbon dioxide to claim up to $70 million a year.
Doukas noted that Wyoming, where the Exxon plant is located, already requires the company to capture as much carbon dioxide as it can sell, a rule intended to maximize oil production in the state. So if Exxon claims the credit, it is benefiting financially for something it is already required to do. “You’ve got the state saying you have to do this one thing, and you have Exxon saying, ‘Well, we already have to do it so we might as well skim off the top with this federal gravy,” he said, “and that to me is scandalous.”
Solution or Excuse?
The story of carbon capture and storage begins with oil and gas. Oil companies pioneered a process decades ago to isolate CO2 from plumes of mixed gases. Separately, in an effort to squeeze more oil out of the ground, the industry had been injecting CO2 into porous subsurface rock. When pumped into old oil formations under high pressure, CO2 mixes with the hydrocarbon and forces it to the surface through a process called enhanced oil recovery. Some of the gas stays behind in the rock, while the rest can be removed from the oil and pumped back underground. The two technologies were first joined in commercial matrimony in 1972 by Chevron, in the scrublands of West Texas.
In the 2000s, the coal industry and some environmentalists began promoting carbon capture as a means of lowering emissions from coal-fired power plants. But so far, most of the world’s 21 large-scale carbon capture plants are attached to natural gas processing facilities, like Exxon’s, or ethanol or fertilizer plants. These facilities generally produce exhaust plumes with higher concentrations of CO2 than a coal plant, making it cheaper to capture the greenhouse gas.
As Congress started considering climate legislation, and activists began ratcheting up pressure on the industry to address emissions, Exxon started promoting carbon capture as a climate-friendly move. In 2008, after a congregation of Dominican Sisters pressed the company to adopt greenhouse gas reduction goals by filing a shareholder resolution, Exxon’s board of directors asked stockholders to vote against the measure, saying the company was already addressing emissions through carbon capture and storage, among other practices.
In recent years, Exxon has continued to promote its investments in the technology to justify rebuffing demands from investors and the public that the company do more to reduce emissions. The calls for change have only increased as the oil industry faces huge losses and financial pressure from the collapse in energy demand caused by the coronavirus pandemic, and an accelerating global transition away from oil. European energy companies have cut the value of their assets by tens of billions of dollars. Exxon has reported more than $1 billion in losses this year, and last month it was removed from the Dow Jones Industrial Average stock index because the company’s value had plummeted.
With the pressure to address climate change increasing, all the major oil companies say that carbon capture will play a prominent role in their efforts, and that’s no surprise: If oil and gas companies are able to capture large amounts of CO2, they may be able to continue selling their products for longer, even as governments limit emissions.
Chevron, for example, recently launched an advertising campaign promoting its investments in carbon capture and storage. The company operates a new CCS plant in Australia, in which Exxon and Royal Dutch Shell are partners.
But the industry’s spending on the technology has lagged far behind the ambitious goals and projections it promotes. The oil industry invested less than $1.85 billion in large scale CCS projects from 2015 through 2018, according to the International Energy Agency, less than 40 percent of total global investment in the technology over that period.
Much of that investment also directly enables more fossil fuel production, rather than limiting emissions that may be hard to avoid. Nearly all the carbon dioxide Exxon has captured has been at the Wyoming facility, and has therefore allowed the company to produce large volumes of natural gas. The joint venture in Australia has a similar purpose, removing CO2 from a natural gas deposit.
Many climate advocates are skeptical that oil companies are truly invested in deploying CCS to limit global emissions in line with what climate scientists say is necessary. Instead, they say, the industry uses the technology to argue that the world can continue burning its products.
Norton, the Exxon spokesman, pointed to the company’s sustained research into the technology, adding that “ExxonMobil is working to make carbon capture and storage technology more economic.” This year, the company filed an application for a $263 million expansion of its Wyoming facility that would include a well that would be capable of receiving carbon dioxide for storage; the company said in the filing that it would either sell or inject the additional CO2 it captures through the expansion.
Heidi Heitkamp, a former Democratic senator from North Dakota who has championed the CCS tax credit, defended Exxon’s efforts, saying the company is committed to developing the technology.
But Kurt Waltzer, managing director of the Clean Air Task Force, an environmental group that supports CCS and has worked closely with some oil companies, expressed doubts about Exxon’s commitment.
“Throughout the history of CCS as a technology, there have been parts of industry that have genuinely supported its development and commercialization, and there have been parts of industry who want to use it as an excuse for inaction,” he said. “There are some in the oil industry, like Occidental and Shell, that are working to develop this technology. And it isn’t clear to me that Exxon is working aggressively to make carbon capture and storage a solution to address the climate.”
An Interesting Marriage
The technology behind carbon capture has been proven to work, but the economics have not. The original 45Q tax credit, enacted in 2008, turned out to be too low to spur much new investment. Most of the 21 large-scale CCS plants operating globally are in the United States and Canada, and all but five of them sell or send the CO2 to bolster oil production, according to the Global CCS Institute.
Many scientists and policy experts say that number has to increase dramatically if the worst effects of global warming are to be staved off. The International Energy Agency said recently that carbon capture capacity must soar to 840 million metric tons by 2030, up from about 40 million today. But the experts add that CCS can play an important role in capturing emissions from industrial processes like manufacturing cement and steel, which account for a significant portion of global emissions.
Attaching the technology to power plants burning fossil fuels is more controversial, because renewable sources have in many cases become a cheaper, emissions-free alternative. There are only two commercial-scale examples, and one of them, a coal plant in Texas, halted its capture of emissions earlier this year as oil prices tanked, because it could not earn enough from CO2 sales to support the plant’s operation.
Advocates say CCS needs the type of sustained government support that helped drive down the costs of renewable energy, and about five years ago, lawmakers in Washington began assembling an unlikely bipartisan coalition to do just that, by expanding the existing tax credit.
“This was the interesting marriage of people who tend to think about what is the future of the coal industry, or the future of the oil and gas industry, and how can we continue to utilize those resources but do it in a way that meets clean energy standards,” said Heitkamp, the North Dakota Democrat.
With support from fossil fuel industries, Heitkamp signed on co-sponsors for a bill expanding the tax credit, including Sen. Sheldon Whitehouse, a Rhode Island Democrat and climate hawk, and Sen. Mitch McConnell, the Republican majority leader from Kentucky who is a staunch defender of the energy industry.
But as Heitkamp’s effort gained steam, Exxon and Denbury Resources, a smaller oil company that specializes in enhanced oil recovery and purchases CO2 from Exxon for use in its wells, began pressing a parallel track. The original tax credit required any company that claimed it to gain EPA approval of a rigorous monitoring plan, to be filed publicly. The companies objected to the requirement, and in 2016, soon after Heitkamp introduced her bill, Sen. John Hoeven (R-N.D.) introduced legislation that would have eliminated the monitoring requirement.
The bill failed, but it has been reintroduced in each session since. Two oil companies have lobbied on the legislation, according to Congressional records: Exxon and Denbury, which recently filed for bankruptcy.
Exxon’s political action committee gave $10,000 to Hoeven in the 2016 election cycle, as well as $10,000 to then-Rep. Kevin Cramer (R-N.D.) and $9,000 to then-Rep Ryan Zinke (R-Mont.), each of whom eventually introduced versions of the bill in the House. Denbury contributed $2,500 to Hoeven in 2016, $5,000 to Cramer in the 2018 cycle, and $4,500 to Zinke’s campaigns from 2014-2016, according to data from the Center for Responsive Politics.
While Hoeven’s bill never gained traction, Exxon and its allies found a new avenue for their lobbying once Donald Trump signed Heitkamp’s expansion of 45Q into law, in February 2018, nearly two years after she first introduced the legislation. The expansion raised the credit to $50 per metric ton of CO2 that is sequestered underground, from the previous level of $20 per metric ton, and to $35 per metric ton used for oil production or other purposes, such as making synthetic fuels, up from $10 per metric ton.
Within weeks, a new industry group called the Energy Advance Center registered to lobby on CCS policy, representing companies that would include Exxon, Denbury and several other oil companies. With the focus shifting from Capitol Hill to the Treasury Department, which would write regulations to implement the expanded credit, Cramer and Hoeven pressed Treasury Secretary Steven Mnuchin to adopt the changes they had pushed in their bill eliminating EPA oversight.
Hoeven’s office did not respond to requests for comment. Jake Wilkins, a spokesman for Cramer, who is now a Republican senator from North Dakota, declined to answer questions, pointing instead to comments Cramer issued last year that his bill would “provide much-needed clarity and consistency for North Dakota’s energy stakeholders.”
Exxon did not answer a question about its involvement in the legislation, and referred questions about the tax credit to the Energy Advance Center. That group has said the oversight required by the EPA presents legal challenges associated with oil leases and is “unnecessarily burdensome and expensive.”
But environmental advocates and experts say the rigorous oversight that Exxon has sought to eliminate is necessary to prevent and detect CO2 leaks. George Peridas, a staff scientist at Lawrence Livermore National Laboratory, pointed to the series of leaks from the Wyoming oil field that received carbon dioxide from Exxon’s plant as an example of what can go wrong without adequate regulation.
It is not the only example. Denbury has been fined at least twice in Mississippi after CO2 leaked from oil fields it operated there. In one of those incidents, a well blowout in Yazoo County released so much carbon dioxide that the gas settled into hollows and suffocated deer and other animals, according to the Mississippi Business Journal. Little is known about how much CO2 may have leaked from enhanced oil recovery operations over the years, in large part because there’s little monitoring by regulators.
Exxon may have another motivation for lobbying to reduce the monitoring required to claim the tax credit. In April, the Treasury Department’s inspector general said in a memo that the IRS had been conducting audits of a handful of companies that had claimed nearly all the credits so far. Out of the nearly $900 million that had been claimed without the submission of monitoring plans, the memo said, the IRS had “disallowed” credits worth $531 million claimed by four taxpayers, and had audits open on another three companies.
Exxon did not submit an EPA monitoring plan until 2018, and even then, the plan covered only a small portion of the CO2 it captured at the Wyoming facility. Waltzer, of the Clean Air Task Force, speculated that the lobbying by Exxon may be driven by an effort to bolster a legal argument to hold on to any credits the company may have already claimed.
“I would say that effort is more about immediate balance sheets than anything else,” he said.
Norton, the Exxon spokesman, directed questions about the company’s lobbying to the Energy Advance Center, which has argued that guidance the IRS issued in 2009 indicated that companies would not have to submit monitoring plans to the EPA, an interpretation at odds with that of the Treasury Department inspector general.
A Partial Victory for Industry
As officials at the Treasury Department and the IRS finished a proposed rule for the expanded tax credit this year, the oil and gas industry launched a final lobbying push. Nearly all the major oil companies, as well as the American Petroleum Institute, have lobbied on the tax credit over the last year. And as the rule went through the White House’s Office of Information and Regulatory Affairs, the last step before a rule is finalized, officials from that office and the Treasury Department met with lobbyists for ExxonMobil, Denbury, BP America, Occidental Petroleum, Shell, Kinder Morgan and Baker Hughes, who made last ditch efforts to shape the regulation.
Exxon and Denbury more than other companies, however, have pushed to roll back oversight, according to Congressional staffers, advocates and lobbyists. BP and Chevron left the Energy Advance Center this year, while Occidental and Shell, which were never members, have advocated for a more moderate rule change that would maintain transparency and a similar level of monitoring, but would allow companies to have third-party contractors approve the monitoring plans.
The proposed rule appears to be at least a partial victory for oil industry lobbyists. Companies will be required to meet certain standards, but they won’t have to submit to EPA oversight—they can instead hire a contractor to approve their monitoring plans. And they can keep those plans hidden from public view.
Whitehouse, one of the original sponsors of the bill creating the tax credit, said in a statement to InsideClimate News that despite Exxon’s lobbying, “we ended up with sensible rules.”
Several environmental groups, however, have been more critical. The Environmental Defense Fund, which supports the tax credit, said the proposed rule is a step in the right direction, but that it fails to ensure “integrity and compliance” for carbon dioxide captured for enhanced oil recovery.
Meanwhile, Exxon is lobbying for more concessions in the final rule, which is expected later this year or next: The Energy Advance Center has requested that companies be able to, in effect, self-certify their ongoing compliance, after having a contractor sign off on the initial monitoring plan.
For skeptics of carbon capture and storage, the lobbying battle highlights the risks of devoting government resources to propping up the technology.
“Using public money to subsidize carbon dioxide enhanced oil recovery doesn’t seem like a climate solution from where I’m sitting,” said Doukas, of Oil Change International. “By doing that, we’re enriching the industry that’s done the most to delay climate action. And Exxon is the perfect example.”
Top Photo Credit: Benjamin Lowy/Reportage by Getty Images