The Texas Tribune, August 8th, 2022
Occidental’s tax break applications include new details about its carbon removal plans, which some experts see as important to countering climate change. Some environmentalists say the technology is unproven, expensive and only marginally useful at best.
Occidental Petroleum is planning to build a series of massive industrial projects in Texas that would be capable of pulling tens of millions of tons of carbon dioxide out of the air, and is seeking substantial state tax breaks to help finance the operations.
The proposals, which the Houston-headquartered company has not discussed publicly, outline what would be the first commercial-scale operations of a long-shot technology that is gaining increased attention from governments and corporations for its potential to help curb climate change.
In recent months, Occidental has applied for property tax abatements in two Texas counties that could be worth hundreds of millions of dollars if it completes the projects, according to an Inside Climate News analysis of the filings.
The applications include new details about the scale of the company’s planned investments in carbon removal — potentially tens of billions of dollars over the next decade — and fresh insight into how the oil company is trying to finance these plans by assembling a package of federal and state tax breaks, climate incentives, a burgeoning corporate market for carbon offsets and even through the sale of oil.
The filings describe plans to build a series of 14 direct air capture projects over the next 15 years at two sites, one outside Odessa and the other along the Gulf Coast south of Corpus Christi. If all are completed, the applications say, they would eventually be capable of capturing 56 million metric tons of carbon dioxide per year.
Some policy experts and scientists say technologies that remove carbon dioxide from the air could one day play a small but important role in helping the world achieve the Paris Agreement’s ambitious climate targets of limiting warming to 1.5 degrees Celsius. These efforts remain prohibitively expensive, however, a fact that is underscored by Occidental’s applications, which say the projects cannot move forward without taxpayer support.
Carbon removal has also generated controversy within the environmental advocacy community. Some activists are concerned that the technologies could be used as an excuse to weaken efforts to cut emissions from fossil fuels. Many also say that the technologies, which have tremendous energy demands, could have their own damaging environmental impacts.
Virginia Palacios is the executive director of Commission Shift, a Texas advocacy group that has raised concerns about the state’s oversight of oil and gas wells and, potentially, of underground injection of carbon dioxide.
“I think it’s kind of absurd,” she said of the possibility that Occidental could receive the state tax abatements. “Because it’s supposed to be a public benefit, but ultimately it’s a private company that’s going to be making lots of money.”
Because Texas has no income tax, the state depends on property taxes to fund schools and other services, she noted. The tax abatements in question, known as Chapter 313 agreements, allow a company to pay school taxes on only a fraction of its true property value for a decade. The program was meant to help draw investment to the state, but academic analysis and investigations by the Houston Chronicle found that it has rewarded companies with billions of dollars in benefits for projects that likely would have been built anyway. In response to criticisms of the program, state lawmakers let it expire this year, leading to a wave of applications that could be grandfathered in for speculative projects that might not be built until the 2040s, in some cases.
“I think it’s just important to have some scrutiny over these applications to determine whether they’re actually incentivizing a company to set up shop or not,” Palacios said.
Occidental has applied for other state tax benefits, too, and has already been awarded at least one other 10-year property tax abatement for one of the projects by Odessa College. Under state law, it is local schools and colleges that approve the property tax abatements. It is unclear how much the abatement from Odessa College could be worth, but Gary Johnson, the chair of the college’s board of trustees, said any lost revenue would be well worth it if it attracts investment and jobs.
“Right now there’s nothing there at all,” Johnson said of the property, adding that the college would eventually reap full tax revenue from the project after the abatement expires.
Occidental declined to answer specific questions for this article, but acknowledged that it had submitted “tax limitation” applications through its subsidiary, 1PointFive. Spokesperson Eric Moses said in a statement that the subsidiary “was formed to help curb global temperature rise to advance the Paris Climate Agreement goals by developing and commercializing technologies that provide practical decarbonization solutions on an industrial scale.” He added that each direct air capture plant “will reflect a significant investment in the communities where they are built.”
There are reasons to doubt that Occidental can achieve the scale described in the applications. Carbon removal technologies remain nascent — the largest operation is a project in Iceland that captures only 4,000 tons per year, and there are no truly commercial-scale operations. Occidental is also under no obligation to build the projects, even if the applications are approved.
“You have to be careful how seriously you take these,” said Nathan Jensen, a professor of government at the University of Texas at Austin who has studied the tax abatement program. “It’s almost like an options contract.”
Still, the last year has brought a wave of interest and investment from governments and corporations that could help nudge the concepts into reality. The infrastructure bill passed by Congress last year directed $3.5 billion to help build “direct air capture” hubs around the country, and the CHIPS Act recently signed by President Joe Biden added an additional $1 billion for research and development. Microsoft, Alphabet, Stripe, United Airlines and other major corporations have pledged billions more in investment, with United investing directly in Occidental’s efforts.
Occidental is positioning itself to be the first large corporation to enter this space and bring the technology to commercial scale. It first announced plans to build a direct air capture plant in the Permian Basin area of West Texas and southeastern New Mexico in 2020, and has said it would initially be able to capture 500,000 metric tons of carbon dioxide per year.
The tax abatement filings show that the local school district in Ector County has already approved Occidental’s application for this initial project, granting what could be $50 million in benefits over a decade if it is completed. The company has said it will begin construction this year.
In March, Occidental announced plans to build up to 70 direct air capture plants globally by 2035. But the tax abatement applications provide the first details about exactly where and when those projects could occur, and how much they would cost.
The total investment would reach into the tens of billions of dollars. In 2025, the applications say, Occidental plans to invest about $2 billion spread across three projects at the two sites. The company’s entire capital budget for this year, most of which will go toward oil, gas and chemical production, is expected to be about $4 billion.
The Odessa operations would sprawl over 1,600 acres on a site known as Shoe Bar Ranch, which was historically a cow-calf operation covered with native pastures, mesquite and greasewood, according to an old online real estate listing. The ranch is also close to many oil wells operated by Occidental, which points to one of the controversial ways the company plans to help finance these massive investments.
For decades, oil companies have been using carbon dioxide to help squeeze oil out of depleted reservoirs, generally using carbon dioxide that has been mined from underground deposits. With nearby deposits drying up, Occidental wants to instead start using captured carbon dioxide from the atmosphere or from smokestacks to extract the oil.
Because most of the carbon dioxide remains in the reservoir after extraction, the company and some independent experts say it is possible to store as much or more of the gas than the carbon dioxide that is emitted when the oil is eventually burned. This potential has prompted Occidental to begin marketing a new product that it calls “net-zero oil,” describing any crude it produces by using captured carbon dioxide. It even signed an agreement with a South Korean refiner to sell its first batch.
Long term, Occidental has said that it will use carbon dioxide to pump oil and produce chemicals or other products, and also will store carbon dioxide underground for customers that want to buy credits to offset their own emissions. It has announced one of these offset deals with Airbus, the European aerospace giant.
Federal tax credits provide another revenue stream. Under current law, Occidental would eventually be eligible to deduct $35 from its taxes for every metric ton of carbon dioxide it captures and uses to produce oil, or $50 for every metric ton that it stores permanently. But if the deal recently struck by Senate Democrats is enacted into law, those figures would leap to $130 or $180 per metric ton. Under these higher credit values, Occidental could be eligible to receive $65 million a year for 12 years for the first project, even if it used the carbon dioxide to pump more oil. Subsequent direct air capture operations could be far larger, potentially generating more than $1 billion annually.
Occidental is also seeking approval from regulators in California to sell carbon credits in that state’s low-carbon fuels market, which is intended to lower the emissions of the state’s transportation sector. If it is successful, refiners in California would be able to avoid selling lower-carbon fuels by purchasing credits from Occidental for pumping carbon dioxide underground in Texas.
These arrangements have drawn harsh criticism from many environmentalists, particularly environmental justice organizations, who say they could perpetuate the production and use of oil, thereby worsening pollution for the disproportionately poor and minority communities that live near oil facilities.
But some environmental groups say all this government support is critical to help launch what could be an important tool for limiting warming.
“Overall, carbon removal is essentially a public good,” said Katie Lebling, an associate in the climate program at the World Resources Institute. “There’s no market for it, there’s no need for people to purchase it,” she added, “so I think there has to be a role for government in supporting that, especially in the beginning.”
Lebling and other supporters of carbon removal technologies say these types of projects need to be deployed rapidly if they are going to provide meaningful contributions to limiting warming.
But it is that same speed that concerns many other environmental advocates, who say too little is known about the potential impacts of the technologies.
While the tax abatement applications carry no guarantee that projects will go as Occidental plans, they do provide the first concrete timelines showing that construction could proceed rapidly.
“I think it’s concerning that it’s moving so fast,” Palacios said. “The public doesn’t really know a lot about this.”
It is unclear what types of state or federal environmental permits Occidental’s direct air capture plants might require. The company declined to say whether any will be necessary.
Occidental has said its direct air capture operations would be powered with a combination of renewably generated electricity and natural gas, and that it would capture the carbon dioxide emitted by burning the gas. It is unclear exactly where those supplies would come from, but it could require drilling new gas wells and constructing new wind or solar farms.
The company has not yet applied to the federal Environmental Protection Agency to store carbon dioxide underground in Texas, meaning that currently, the only option for injecting the gas would be into old oil and gas wells to help increase fossil fuel production.
“I think we just need to be cautious about jumping into some of these new technologies where we know there are risks,” Palacios said, “and we haven’t really taken the time to assess those risks.”
Originally Posted on The Texas Tribune