The Future of US Carbon Capture Under the Big Beautiful Bill

Carbon capture is gaining momentum in the US as expanded tax credits and new legislation improve project economics and attract investment. A growing pipeline of projects and early industry partnerships signal potential for scale. Still, questions around permitting, policy durability and financing highlight the uncertainties that will shape how far and how fast the sector develops.

When the US Inflation Reduction Act (IRA) became law on Aug. 16, 2022, it gave carbon capture a powerful boost. The act raised the federal tax credit for projects that capture and store carbon dioxide from $50 to $85 per ton, and to $60 for CO2 used in enhanced oil recovery or industrial processes. That shift under Section 45Q of the tax code suddenly made carbon capture and storage (CCS) a much stronger business proposition.

Even before the increase, the incentive was enough to get certain projects off the ground. A North Dakota ethanol plant, Red Trail Energy, used the $50 credit to capture and store its emissions while also selling low-carbon ethanol into premium markets. But with the credit now set at $85/ton — a 70% jump — the economics have improved dramatically. Deloitte’s carbon capture specialist, Jeremy DuMuth, noted that before the IRA, fewer than half of the US projects he reviewed made financial sense. Afterward, every one of them did.

That extra support brings the credit closer to covering the real costs of capturing CO2 in tougher industries such as cement, steel and power generation. Analysts at the Clean Air Task Force have argued that the old $50 rate seriously undervalued the cost of capture, transport and storage for these sectors.

And there’s more change ahead. The newly passed One Big Beautiful Bill Act (OBBBA) keeps Section 45Q in place but expands its reach, opening the door for projects that use captured carbon in oil recovery and other commercial applications.

In essence, the government is now covering such a large portion of project cost that it’s been likened to Uncle Sam financing about 30% of a project’s equity — a powerful incentive luring many new players into the game. It’s no surprise, then, that proponents describe 45Q as the “foundational market driver” for scaling up carbon management in the US. With a reliable $85/ton revenue stream locked in for 12 years per project, carbon capture has turned into a bankable business model rather than just a climate experiment.

Momentum and Investor Interest Surges

Carbon capture has been riding a wave of new investment since the IRA expanded the 45Q credit in 2022. Within a year, the US project pipeline nearly doubled — from 81 prospective facilities in late 2022 to 154 by the end of 2023, according to E&E News. Today, more than 270 carbon capture and removal projects have been announced nationwide, and over 190 of those came after the IRA’s passage. The floodgates aren’t fully open yet, but capital is pouring in as investors see real potential in turning emissions reduction into profit.

That enthusiasm spans the spectrum, from venture capital and private equity to industrial players and oil and gas majors. Tens of billions of dollars are funneling into energy transition technologies, with CCS climbing near the top of the list. Corporations are moving quickly to stake their ground in what looks like a growth sector.

Exxon Mobil, for example, created a Low Carbon Solutions division and last year bought Denbury for $4.9 billion, gaining control of the largest CO2 pipeline network along the Gulf Coast and multiple storage sites. The company described the purchase as a way to accelerate its energy transition strategy and offer CO2 transport and storage services to heavy emitters.

Partnerships are also multiplying. Midstream operators and industrial emitters are joining forces to capture and store carbon at scale. One prominent deal paired Exxon with CF Industries, a leading fertilizer producer, and EnLink Midstream to capture up to 2 million tons per year of CO2 from CF’s Louisiana ammonia plant. The CO2 will be stored in geological formations beneath Exxon’s property, with the project expected to generate about $170 million annually in tax credits at the $85/ton rate. Industry watchers say this is likely the first of many such arrangements.

Early Winners

Not all carbon capture projects are created equal. Some are advancing more quickly because their economics are stronger and the technology is ready to go. The most approachable opportunities tend to come from industries in which CO2 is easier and cheaper to capture, or where there are extra revenue streams to sweeten the deal.

Natural gas processing plants and fertilizer producers have been among the first movers, since in both sectors CO2 streams can be captured at relatively low cost. Ethanol plants have also proved attractive, thanks to their pure CO2 emissions from fermentation. Two US ethanol facilities — including Red Trail Energy in North Dakota — are already capturing and storing carbon, supported by 45Q credits and the ability to sell ethanol into low-carbon fuel markets.

Another promising model is the creation of carbon capture hubs in petrochemical and refining regions, such as the Houston Ship Channel or Louisiana’s industrial corridor. These hubs allow multiple emitters — from refineries to cement plants — to connect into shared pipelines and storage infrastructure, spreading costs and accelerating deployment.

Power generation is beginning to see movement as well. While capturing CO2 from coal and natural gas plants has long been seen as too expensive, the richer incentives are starting to close the gap. While the Petra Nova project in Texas remains the only US power-plant CCS facility in operation, it may soon have company.

Perhaps the boldest frontier is direct air capture (DAC), which removes CO2 directly from the atmosphere. Here, the IRA’s boost to $180/ton in federal credits is catalyzing projects once considered out of reach. Occidental Petroleum, for instance, has begun building a large-scale DAC facility in Texas designed to pull half a million tons of CO2 from the air each year and has announced plans for dozens more plants. Other companies — including Climeworks, CarbonCapture and Global Thermostat — are also raising capital and siting projects, encouraged by both federal support and private investment.

Taken together, these early wins show how policy incentives are creating the conditions for first movers to act. From industrial emitters to next-generation carbon removal, the projects advancing today could set the stage for carbon capture to scale at a pace once thought impossible.

Challenges and the Road Ahead

For all the optimism around carbon capture, building and operating these projects is no easy task. Each facility requires multiple moving parts — capture systems, compressors, pipelines, injection wells and long-term monitoring — which adds years to development timelines and layers of regulation.

Permitting is often the biggest bottleneck. Outside of a few states like North Dakota, Wyoming, Louisiana and West Virginia, developers must rely on the Environmental Protection Agency to approve CO2 storage wells, a process that can take years and involve tens of thousands of pages of documentation. Large multistate pipeline projects have also faced local pushback and lengthy reviews, slowing their progress.

Policy durability is another concern. The 45Q credit is only valuable if the incentive remains in place politically. While the current support is strong and bipartisan, investors remember that shifting administrations could always change course.

To ease this risk, the IRA introduced transferability and direct pay options so that companies without big tax bills can still realize the credit’s value quickly, improving cash flow. More recently, the OBBBA strengthened 45Q further, restoring full transferability and adjusting for inflation, a sign lawmakers recognize the need for stability, even as rising costs erode the credit’s buying power.

The economics, while improved, still demand heavy upfront investment. Developers often rely on government grants or low-interest loans to derisk early projects, pairing public dollars with private capital. That combination is helping to push projects forward, but scaling the industry to the level needed for climate goals will take far more. The US Department of Energy estimates that reaching net zero by 2050 could require an eighteenfold to eightyfold increase in US carbon capture capacity, hundreds of new projects beyond what exists today.

Global competition is also intensifying. Europe, China and other regions are rolling out their own carbon capture incentives, creating both pressure and opportunity for US companies to lead. With 19 commercial CCS facilities already operating and more in the pipeline than anywhere else, the US holds a head start. Keeping it will depend on sustained policy support, faster permitting and the ability to finance projects at scale.

Dawn Lima is vice president of renewable energy and sustainable technologies, and Bryen Alperin a partner and managing director at tax credit specialist Foss & Company. The views expressed in this article are those of the authors.