Posts Tagged tertiary extraction

Carbon Tax: Sequestration and Tertiary Extraction

Posted by on Sunday, 4 April, 2010

To deal with climate change, it is necessary to trap carbon produced in manufacturing. Clean energy production is not ramping up quickly enough to reduce the carbon present in the atmosphere. So the IRS has created carbon sequestration credits to provide a tax break for manufacturers who trap carbon, and the Treasury proposed removing tax benefits for oil and gas production.

According to the IRS, it is possible to gain a tax credit for carbon sequestration. The credit is twice as high, twenty dollars a metric ton, if the carbon is not used to extract natural gas or oil once captured. A manufacturer can still receive ten dollars per metric ton if the carbon is used to extract petroleum fuels. This suggests that the carbon sequestration credit could be used to support additional petroleum exploration that releases carbon into the atmosphere, especially if the oil company offers more than the difference of ten dollars a metric ton for the carbon dioxide so it can be used in tertiary extraction.

Injecting the carbon dioxide into an oil field releases oil or gas that is difficult to extract through other means, so it is called a tertiary injectant as it is injected after other methods are used. According to the Treasury Green Book, the tertiary injection deduction may be repealed in 2011. A related policy, the enhanced oil recovery credit, is also suggested for repeal. This is part of energy legislation that removes other tax incentives for the oil and gas industry, such as tax deductions for drilling in marginal wells, in addition to changing how depletion and oil well drilling costs are reported. Coal extraction deductions for US manufacturing are also removed in this proposal. The overall effect of the energy legislation removes subsidies to natural gas and oil companies, so that their products are less cost competitive with renewable energy. This is an alternative to cap and trade, as it changes tax rules rather than creating a carbon futures exchange.