The Inflation Reduction Act, also known as President Biden’s climate law, has found an unlikely support in the industry that many argue it wants to destroy: oil and gas. In the runup to the November elections, oil majors are telling Republican candidate Donald Trump not to kill the legislation—at least the parts set to benefit those majors.
The Wall Street Journal reported the developments, citing unnamed sources as saying Occidental’s CEO, for instance, approached Trump directly during a campaign event to argue the case for leaving IRA funding for carbon capture untouched. The report noted that other hitherto unlikely advocates for the IRA include Exxon and Phillips 66.
Occidental has a significant stake in one of the technologies supported by the Inflation Reduction Act. That is carbon capture and, more specifically, direct air capture. The company, which is the first U.S. oil producer that has pledged to reach net-zero status, including in its Scope 3 emissions, is currently building what could become the largest direct air capture facility in the country, in Texas. While there are doubts about whether DAC could deliver on an ambitious promise, one thing is certain: it is expensive.
Occidental’s Texas DAC plant has a price tag of $1.3 billion. The company already inked a deal to sell carbon credits from the facility to Microsoft, so the latter could claim lower emissions for its own net-zero purposes, and it eyes more of these to make the economics work—besides IRA funding, that is.
Exxon is betting big on both carbon capture and hydrogen—two prominent destinations for IRA funding. Last year, the company spent $4.9 billion on the acquisition of Denbury, the operator of a carbon dioxide pipeline network. Exxon has also inked four deals to date with companies willing to pay the supermajor to capture their carbon dioxide. “That’s equivalent to replacing about 2 million gasoline-powered cars with electric vehicles, which is more than the total EVs sold in the United States in 2023,” Exxon boasted about the latest deal, with ammonia maker CF Industries.
The list goes on. Chevron is also investing heavily in hydrogen and carbon capture. Phillips 66—another company that has recently approached Trump to talk about the IRA—is planning to make a name for itself by producing sustainable aviation fuels. All of this requires substantial financial support from the federal government.
“There are elements of the IRA that the general industry says would be bad to unwind,” Mark Lashier, the chief executive of Phillips 66, told the Wall Street Journal in an interview recently. “Everybody is working out their contingency plans for either administration.”
One would assume that a Trump administration would be rather good news for the oil and gas industry, but that may be an overstatement—since that administration would be coming after a Biden administration bent on clipping the wings of oil and gas producers. It was also an administration that pushed them into alternative investment areas such as the above—and forced them to put their money where their mouth is.
Carbon capture, as noted, is not a cheap technology. Occidental’s first bet on it quietly failed and was never discussed again until Bloomberg reported that the facility built 13 years ago had never operated at more than a third of its capacity. In fact, some of the critics of carbon capture argue that high cost is one of the things that makes the technology wrong for the energy transition, pretty much like green hydrogen.
Sustainable aviation fuels cost about three times more to produce than regular jet fuel. This cost is unlikely to come down anytime soon because of the limited availability of feedstock, which is mostly used cooking oil. It is simply not produced on a large enough scale to bring the cost of SAF production down.
In short, transition investment is both large and high-risk, so even Big Oil majors would rather share the risk with the government pushing for that transition. Yet once made, these investments cannot simply be pulled out in case the White House gets a new, anti-transition occupant. It is an ironic situation, but Big Oil has every reason to advocate for at least some parts of the Inflation Reduction Act. It is not the only one, either.
“If we win, we need to take a scalpel, not an ax, to the IRA,” Senator Kevin Cramer from North Dakota told the Wall Street Journal in evidence that Republican and pro-oil states like their transition subsidies as much as anyone else. Oklahoma and South Carolina are also among the states eyeing a piece of the IRA pie whoever ends up in office next month. It seems no one is asking what should be the most important question: what happens when the money runs out?
By Irina Slav for Oilprice.com
