Big Oil Becomes Unexpected Supporter of Biden’s Climate Law

The Inflation Relief Act, also known as President Biden’s climate law, has found unlikely support in the industry many say he wants to destroy: oil and gas. In the run-up to the November election, oil companies are telling Republican nominee Donald Trump not to kill the legislation — at least the parts that will benefit those majorities.

The Wall Street Journal reported the developments, citing anonymous sources, as saying that Occidental’s CEO, for example, approached Trump directly during a campaign event to make the case for leaving the IRA’s carbon capture funding intact. The report noted that other hitherto unlikely backers of the IRA include Exxon and Phillips 66.

Occidental has a significant stake in one of the technologies supported by the Inflation Relief Act. This is carbon capture, and more specifically, direct air capture. The company, which is the first US oil producer to commit to net zero status, including in its Scope 3 emissions, is currently building what could become the nation’s largest direct air capture facility in Texas. While there are doubts that the DAC could deliver on its ambitious promise, one thing is certain: it’s expensive.

The Western DAC plant in Texas is priced at $1.3 billion. The company has already struck a deal to sell carbon credits from the facility to Microsoft, so the latter could claim lower emissions for its own net zero goals, and is considering more of them to make the economics work – other than IRA funding, that is.

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Exxon is betting big on both carbon capture and hydrogen—two prominent destinations for IRA funding. Last year, the company spent $4.9 billion to acquire Denbury, the operator of a network of carbon dioxide pipelines. Exxon has also struck four deals so far with companies willing to pay the supermajor to capture its carbon dioxide. “This is equivalent to replacing approximately 2 million gasoline-powered cars with electric vehicles, which is more than the total number of electric vehicles sold in the United States in 2023,” Exxon boasted of its latest deal, with ammonia producer CF Industries.

The list goes on. Chevron is also investing heavily in hydrogen and carbon capture. Phillips 66 — another company that recently approached Trump to talk about the IRA — plans 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 IRAs that the general industry says it would be bad to relax,” Phillips 66 Chief Executive Mark Lashier told the Wall Street Journal in a recent interview. “Everybody is making their contingency plans for either administration.”

One might assume that a Trump administration would be pretty good news for the oil and gas industry, but that may be an exaggeration, as that administration would come 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 like the ones above – and forced them to put their money where their mouths are.

Carbon capture, as mentioned, 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 the high cost is one of the things that makes the technology wrong for the energy transition, much like green hydrogen.

Sustainable aviation fuels cost about three times more to produce than regular jet fuel. This cost is unlikely to decrease anytime soon due to the limited availability of the feedstock, which is mainly used cooking oil. It is simply not produced on a large enough scale to drive down the cost of SAF production.

In short, transition investments are both large and high-risk, so even the oil majors would prefer to share the risk with the government pushing for this transition. However, once made, these investments cannot simply be withdrawn if the White House receives a new, anti-transition occupant. It’s an ironic situation, but Big Oil has every reason to advocate for at least some parts of the Inflation Relief Act. He is not the only one either.

“If we win, we need to take a scalpel, not an ax, to the IRA,” Sen. Kevin Cramer of North Dakota told the Wall Street Journal, as evidence that Republican and pro-oil states like their transition subsidies just as much. much like anyone else. . Oklahoma and South Carolina are also among the states eyeing a piece of the IRA pie, whoever gets into office next month. No one seems to be asking what should be the most important question: What happens when the money runs out?

By Irina Slav for Oilprice.com

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