Enhancing Energy Recovery Act

Bill Summary

What this bill does, in plain terms, is rewrite the rules for the federal tax credit known as “45Q,” which pays facilities for capturing carbon dioxide (or other “qualified carbon oxides”) and either storing it underground, using it in oil and gas recovery, or incorporating it into products such as building materials. Today, the value of the credit varies depending on how the captured CO2 is used. For example, under current law after the Inflation Reduction Act (IRA), permanently storing CO2 in deep geologic formations generally earns a higher credit than using CO2 for enhanced oil recovery (EOR) or other utilization. Direct air capture (DAC) projects also have their own higher credit amounts. The bill’s central aim is to set “parity” among these different end uses so that the same amount of credit is available no matter which qualifying pathway the captured CO2 takes—secure storage, EOR with secure storage, or other approved utilization.

How the bill accomplishes this:

- It consolidates the qualifying pathways into one unified provision. Instead of having separate clauses that lead to different dollar amounts, the bill rewrites 45Q(a) so that all qualifying uses—(i) secure geologic storage, (ii) EOR in a qualified oil or natural gas recovery project with secure storage, and (iii) other approved utilization under 45Q(f)(5)—are treated under a single paragraph for purposes of the credit amount.

- It explicitly maintains the requirement that CO2 used in EOR must also be disposed of in secure geologic storage to qualify, preserving the environmental integrity guardrails already in law.

- It standardizes the “applicable dollar amount” across uses by resetting the base credit to $17 per metric ton for industrial capture and $36 per ton for direct air capture (DAC), with inflation adjustments after 2026 using the inflation factor in section 43 (the enhanced oil recovery credit index) with a 2025 base year.

- Crucially, it does not remove the IRA’s five-times multiplier tied to meeting prevailing wage and apprenticeship (PWA) requirements. Instead, it conforms the cross-references so that the multiplier applies to the single, unified dollar amount. That means projects meeting PWA would receive 5× the base amounts: $85/ton for industrial capture and $180/ton for DAC—regardless of whether the CO2 is stored, used for EOR (with storage), or otherwise utilized under the statute.

What changes in practice:

- Under current law, after 2026, secure geologic storage earns a higher credit than EOR or other utilization. This bill equalizes them. For industrial capture projects that satisfy PWA, the credit would be $85/ton for all qualifying pathways (instead of $85 for storage and $60 for EOR/utilization). For DAC that satisfies PWA, it would be $180/ton across the board (instead of $180 for storage and $130 for EOR/utilization). At the base (non-PWA) rate, industrial capture would be $17/ton for all pathways (instead of $17 for storage and $12 for EOR/utilization), and DAC would be $36 across the board (instead of $36 for storage and $26 for EOR/utilization).

- The bill removes the statutory structure that differentiated credit values by end use, replacing it with a single unified amount. That smooths planning and financing for projects, because developers will no longer face a lower credit for EOR or product utilization relative to permanent storage.

- It keeps other key features of 45Q intact: the requirement for secure geologic storage where applicable, the utilization standards in 45Q(f)(5), recapture provisions, and the wage/apprenticeship multiplier. It also updates an Internal Revenue Code cross-reference (Section 6417, the elective direct-pay provision) so the parity change is reflected elsewhere in tax law. The bill applies beginning with tax years after December 31, 2024.

Policy implications:

- By raising EOR and other utilization to parity with secure storage, the bill makes EOR-linked carbon capture more financially attractive, since projects could combine the same federal credit with revenue from additional oil or gas recovery. That is likely to drive more CCUS deployment in oil and gas regions and could increase domestic production.

- Supporters argue this levels the playing field, avoids government “picking winners,” and expands the universe of economically viable carbon capture projects (including utilization in building materials, fuels, and chemicals) while preserving labor standards and storage integrity.

- Critics will say the change subsidizes fossil fuel extraction by giving EOR the same top-tier benefits as permanent storage, potentially undercutting the climate advantage of prioritizing long-lived sequestration. They will also note the potential fiscal impact: more projects and more generous rates for EOR/utilization could increase the cost of the credit to the Treasury.

In short, the bill keeps the IRA’s headline per-ton values for projects meeting labor standards ($85 industrial/$180 DAC) but extends those values to all qualifying uses, including EOR and other utilization, and it modestly lifts the lower, non-PWA rates for EOR/utilization to match storage. It is a structural simplification that materially boosts incentives for EOR and product utilization while keeping existing safeguards, labor incentives, and recapture provisions in place. Effective in 2025, it is designed to widen the economic viability of CCUS projects, particularly in energy-producing states, by removing the current penalty for using captured CO2 in EOR or other utilization pathways.

Pros

Could accelerate deployment of carbon capture across hard-to-abate industrial sectors and utilization markets (e.g., low-carbon cement, concrete, and chemicals) by removing an end-use penalty.
Retains prevailing wage and apprenticeship provisions and the five-times credit multiplier, supporting high-road jobs and union labor standards baked into the IRA.
Maintains secure geologic storage requirements for EOR-linked projects, preserving key environmental integrity safeguards and recapture provisions.
Parity may spur innovation and scale in carbon utilization pathways that permanently bind CO2 in materials, diversifying decarbonization tools beyond storage alone.
Keeps direct-pay cross-references intact, enabling non-taxable or early-stage entities to better finance projects during initial years.

Creates a level playing field by eliminating government favoritism among CO2 end uses; lets markets decide whether storage, EOR, or product utilization is best for each project.
Strengthens the economics of enhanced oil and natural gas recovery, supporting domestic energy production, energy security, and jobs in producing states.
Simplifies 45Q’s structure by consolidating categories and harmonizing the credit amounts, reducing financing and planning uncertainty for developers and investors.
Retains existing labor rules without adding new mandates, preserving bipartisan IRA compromises while improving project viability across the board.
Supports commercialization of CCUS and utilization technologies at scale, potentially lowering costs and helping U.S. firms lead globally.

Cons

Elevating EOR to the same incentive level as permanent storage could increase oil production and associated lifecycle emissions, undermining climate goals and weakening the policy preference for long-lived sequestration.
Could redirect captured CO2 away from permanent storage toward EOR because EOR now yields equal credit plus oil revenue, potentially reducing net climate benefits.
Higher utilization/EOR payouts may increase the fiscal cost of 45Q to the Treasury without commensurate emissions reductions, raising concerns about subsidy efficiency.
Communities near EOR fields and CO2 pipelines may face increased environmental and safety risks; parity may accelerate buildout without added safeguards or community benefits.
Blurs a core IRA design principle that aligned higher payments with higher climate benefit (permanent storage), potentially diluting incentives to maximize permanence.

Expanding higher-rate eligibility to EOR and utilization could increase the total cost of 45Q, drawing criticism from fiscal conservatives wary of larger tax expenditures.
Democrats may argue the bill boosts subsidies for oil companies, creating political headwinds and potential bargaining demands (e.g., added environmental conditions).
Maintains the IRA’s wage/apprenticeship multiplier, which some Republicans and industry stakeholders view as burdensome or complex to administer.
Does not address broader permitting and pipeline buildout constraints that may still limit CCUS deployment despite parity; credit reform alone may not unlock projects.
By equalizing credits, the bill could face opposition from climate-focused stakeholders, risking legislative delays or necessitating concessions elsewhere.

This bill was introduced on February 05, 2025 in the Senate.

View on Congress.gov:
https://www.congress.gov/bill/119th-congress/senate-bill/425

Feb 05, 2025

Read twice and referred to the Committee on Finance. (text: CR S668)
Feb 05, 2025

Introduced in Senate

10000

This bill has not yet been enacted into law.

Enhancing Energy Recovery Act

Bill Summary

Pros

Cons

Introduction

History

Read twice and referred to the Committee on Finance. (text: CR S668)

Introduced in Senate

Laws Enacted

Related Bills