Billions of taxpayer dollars once intended to help fight climate change by subsidizing  capture and storage of carbon dioxide may instead go to fossil fuel companies to help boost production of oil — one of the main drivers of climate change.

In a Feb. 19 call with investors, Vicki Hollub, chief executive officer of Occidental Petroleum, said she’s had several conversations with President Donald Trump, arguing the “business case” for federal support for carbon capture.

“We believe the next round of technology that's going to add significant barrels, … will be production that comes from the use of CO2 in enhanced oil recovery,” Hollub said. “And that 50 billion to 70 billion barrels would extend our energy independence by more than 10 years. It's critically important.”

The United States produced about 5 billion barrels of oil in 2023. Hollub calls carbon capture a way to keep the oil industry alive amid the international calls to reduce reliance on fossil fuels.

In enhanced oil recovery, pressurized carbon dioxide is used to force oil out of aging wells. The process is used to produce about 2% of the nation’s oil. Hollub said the industry is turning to carbon captured from industrial sources as the supply of naturally occurring carbon dioxide has dwindled.

Depending on conditions, producing oil using captured carbon can offset the climate impacts of a barrel of oil, making it less carbon intensive. But because new oil supplies lower the market price of oil, it could increase demand for oil, raising overall carbon emissions, according to one analysis by the Clean Air Task Force, which supports carbon capture.

Charles Harvey, professor of civil and environmental engineering at the Massachusetts Institute of Technology, told Floodlight that the net climate impact of using captured carbon for enhanced oil recovery “gets super complicated.”

The pivot from carbon capture as a climate solution to a boost for oil comes as the Trump administration seeks to cut or kill climate-related spending, including billions set aside for carbon capture and sequestration, while also ordering the federal government to pave the way for more fossil fuel production.

Project 2025: No subsidies for carbon capture

Support of carbon capture, though, might alienate a key Trump ally.

The Heritage Foundation and its Project 2025 — which is serving as a blueprint for Trump’s second term — argue that federal incentives for carbon capture should be scrapped.

“Most carbon capture technology remains economically unviable, although private-sector innovations are on the horizon,” according to Project 2025. “(Carbon capture utilization and sequestration) programs should be left to the private sector to develop.”

Critics also question the safety of the technology, noting that leaks from pipelines have sent dozens of people to the hospital and forced evacuation orders.

During the Biden administration, Congress allocated about $8.2 billion to carbon capture projects, and increased a tax credit for carbon capture that the U.S. Treasury has estimated will cost $30 billion through 2032.

If Trump allows the carbon capture incentives to stay in place, oil companies could increase production at a time when the international consensus is that no new oil should be produced if the world is to keep climate change in check.

The subsidies “create a perverse incentive, because for companies to qualify for the subsidies, carbon dioxide must be produced, then captured and buried,” Harvey and Kurt House wrote in an opinion piece in the New York Times. The two co-founded the first privately funded carbon capture company in the early 2000s. They left the company when it began selling carbon for enhanced oil recovery.

Occidental has invested heavily in carbon capture, including buying a carbon technology firm for $1 billion in 2023. The multinational oil company, which bills itself as an industry leader in seeking low-carbon solutions, also is developing a federally supported facility in Texas that would capture carbon directly from the atmosphere, called direct air capture.

While most carbon capture projects are designed to take carbon from a facility’s emissions — such as from a power or chemical plant  — direct air capture filters and captures 0.4 percent of carbon dioxide directly from the ambient air. If Trump allows federal support for the project to continue, Occidental subsidiary 1PointFive stands to receive at least $500 million from the Department of Energy.

Carbon capture faces funding ‘uncertainties’

Compared with other funding approved under the Inflation Reduction Act targeted by Trump — such as for solar energy and offshore wind — carbon capture “is in a good place relative to some of the other tax clean energy tax credits,” said Jessie Stolark, executive director of the Carbon Capture Coalition.

“And I would say we're cautiously optimistic as far as our positioning,” she said. “But, you know, it's just kind of a moving target at this point.”

Before the incentives, companies had no way to make money from capturing carbon other than to sell it to oil companies for enhanced oil recovery. But since carbon capture incentives were boosted under Biden, more than 270 carbon capture and storage projects have been announced.

Some projects are in limbo as they await direction from the federal government, Stolark said.

“There's more uncertainties, certainly for folks who have federal grants awarded or under contract, given the federal funding freeze, and the different memos and directives that have come out,” she said.

Stolark’s group and more than 160 other companies and organizations signed a letter to congressional leadership after Trump’s inauguration, urging the lawmakers to maintain support for carbon capture.

One bill introduced this year in Congress would give companies that use captured carbon to recover oil the same amount of tax credit as they receive to permanently store it underground — eliminating the incentive to do so.

Carbon capture incentives are “another subsidy for oil,” said Carolyn Raffensburger, executive director of the nonprofit Science and Environmental Health Network, which produced a report last year on the “false promises” of using captured carbon dioxide to produce oil.

The report concludes that using carbon dioxide for enhanced oil recovery is “the last best hope for the fossil fuel industry to keep pumping oil out of the ground. It must end.”

Floodlight is a nonprofit newsroom that investigates the powerful interests stalling climate action.