Mitigating Climate Change While Producing More Oil: Economic Analysis of Government Support for CCS-EOR

By storing CO 2 captured from the atmosphere or point sources into oil fields, carbon capture and storage with enhanced oil recovery (CCS-EOR) increases the fields' output by raising reservoir pressures. Since CO 2 -EOR has been experimented with for decades and the revenues from the additional oil production improve projects' economics, CCS-EOR is the most readily deployable CCS technology. However, government support for CCS-EOR projects is sometimes contested on the grounds that the resulting increase in oil production undermines their environmental benefits. Addressing this concern requires determining the effects of implementing CCS-EOR on global CO 2 emissions. This paper presents a simple approach based on a marginal reasoning consistent with economic decision-making. It produces analytical formulas that account for the effects on the global oil market of incentivizing CCS-EOR. In addition, we quantify the volume of oil that can be decarbonized by storing a ton of captured CO 2 through EOR from different perspectives. We produce numerical results based on a first-cut calibration. They suggest that, from an economic perspective, CCS-EOR is a technology that mitigates global emissions. However, after accounting for the need to decarbonize the EOR oil, the reduction in emissions is significantly less than the stored quantity of CO 2 . If fully allocated to oil production, the environmental benefits of capturing a ton of CO 2 and storing it through conventional EOR can allow the oil producer to decarbonize 3.4 barrels on a well-to-wheel basis and 14.4 barrels when offsetting its oil-upstream emissions only. Fiscal incentives granted by governments to support CCS-EOR as a climate-change mitigation technology should be sized accordingly. We compare our findings to the size of the subsidy in the revised Section 45Q of the 2022 United States Inflation Reduction Act.