Big new climate deal with Exxon Mobil that got help from Joe Biden

Could it be that Big Oil’s next big thing got a big helping hand from Joe Biden?

Perhaps, if carbon capture and storage is indeed as important as ExxonMobil’s first deal to extract, transport and store carbon from other companies’ factories implies.

The agreement, announced last month, provides ExxonMobil capture the carbon emitted by CF Industriesammonia plant in Donaldsonville, Louisiana, and transport it to underground storage using pipelines owned by Enlink Midstream. Scheduled to kick off in 2025, the deal is meant to herald a new milestone in managing the carbon produced by manufacturers and is the latest step in ExxonMobil’s often tense dialogue with investors who want oil companies to cut emissions.

The Cut Inflation Act, passed in August, could determine whether deals like Exxon’s become a trend. The law expands tax credits to capture carbon from industrial uses in an effort to offset the high upfront costs of carbon capture plans in places like the CF plant, because other tax credits in the law reduce the costs of renewable energy and electric cars.

The Inflation Reduction Act and the Big Oil Companies

The law can help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profits they will lose as electric vehicles proliferate. Although the company does not share its financial projections, it has committed to investing $15 billion in CCS by 2027 and ExxonMobil Low-Carbon Solutions President Dan Ammann has said it may invest any further.

“We see a big business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies across a whole range of industries, a whole range of sectors, a whole range of geographies.”

The agreement calls for ExxonMobil to capture and remove 2 million metric tons of carbon dioxide from the CF plant each year, the equivalent of replacing 700,000 gasoline-powered vehicles with electric versions.

Each company involved pursues its own version of the low-carbon industrial economy. CF wants to produce more carbon-free blue ammonia, a process that often involves extracting ammonia components from carbon-laden fossil fuels. Enlink hopes to become something of a railroad for captured CO2 emissions, calling itself the “CO2 transportation provider of choice” for an industrial corridor loaded with refineries and chemical plants.

An industrial facility on the Houston Ship Channel where Exxon Mobil offers a carbon capture and sequestration network. Between this industry-wide plan and its first deal for another company’s CCS needs, ExxonMobil hopes its low-carbon business will quickly evolve into a legitimate source of revenue and profit.

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Exxon itself wants to develop carbon capture as a new business, Amman said, pointing to a “very large backlog of similar projects,” as part of the company’s commitment to removing as much carbon from the atmosphere that Exxon itself emits by 2050.

“We want oil companies to be active participants in reducing carbon emissions,” said Julio Friedmann, deputy assistant secretary of energy under President Obama and chief scientist at Carbon Direct in New York. “I expect this to become a flagship project.”

The key to the sudden flurry of activity is the Inflation Reduction Act.

“It’s a really good example of the intersection of good policy with business and the innovation that can happen on the business side to tackle the big problem of emissions and the big problem of climate change,” Ammann said. “The interest we’re seeing, the backlog, all confirm that it’s starting to move and starting to move quickly.”

The law increased an existing carbon capture tax credit to $85 a tonne from $45, Goldman said, saving the Exxon/CF/Enlink project up to $80 million per year. Credits for captured carbon used underground to enhance the production of more fossil fuels are lower, at $60 per ton.

“Carbon capture is big boys’ game,” said Peter McNally, global head of industrial research, materials and energy at consultancy Third Bridge. “These are billion-dollar projects. These are big companies capturing large amounts of carbon. And the big oil and gas companies are where the expertise is.”

Goldman Sachs and environmentalists are skeptical

A Goldman Sachs team led by analyst Brian Singer called the law “transformative” for climate-reducing technologies, including battery storage and clean hydrogen. But his analysis is less optimistic about the impact on carbon capture projects like Exxon’s, with Singer expecting more modest gains as the law accelerates the development of longer-term projects. To further accelerate investment, companies need to build larger-scale CCS systems and invent more efficient carbon removal chemistry, the Goldman team said.

Industrial uses are the third largest source of greenhouse gas emissions in the United States, according to the EPA. It is just behind power generation and transportation. Reducing emissions in industrial uses is considered more expensive and more difficult than in electricity generation or transport by cars and trucks. Industry is the focus of CCS, as utilities and automakers look first to other technologies to reduce emissions.

Nearly 20% of US electricity last year came from renewable sources that replace coal and natural gas and another 19% came from carbon-free nuclear power, according to government data. The share of renewables increases rapidly in 2022, according to interim reports from the Department of Energy, and the IRA is also extending tax credits for wind and solar power. Most airlines plan to reduce their carbon footprint by switching to biofuels over the next decade.

More oil and chemical companies seem likely to jump on the carbon capture bandwagon first. In May, the British oil giant BP and petrochemical maker Linde announced a plan to capture 15 million tons of carbon annually at Linde plants in Greater Houston. Linde wants to grow its sales of low-carbon hydrogen, which is typically made by mixing natural gas with steam and a chemical catalyst. In March, Oxy announced an agreement with a unit of the wood producer Weyerhauser. Oxy has won the rights to store carbon under 30,000 acres of Weyerhauser forest land, though it continues to grow trees on the surface, with the two companies set to expand to other sites over time .

Yet environmentalists remain skeptical of CCS.

Tax credits can lower the cost of CCS for businesses, but taxpayers still foot the bill for what remains a “mess,” said Carroll Muffett, CEO of the Center for International Environmental Law in Washington. Most industrial emissions come from the electricity used by factories, and factory owners should reduce this part of their carbon footprint by prioritizing renewable energy, he said.

“It doesn’t make economic sense at the highest levels, and the IRA doesn’t change that,” Muffett said. “It just changes who takes the risk.”

Friedman countered by saying that economies of scale and technical innovations will reduce costs, and that CCS can reduce carbon emissions by up to 10% over time.

“It’s a pretty robust number,” Friedmann said. “And it’s about things that you can’t easily address otherwise.”

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