The 45Q tax credit, the principal federal incentive for carbon capture and storage in the United States, is drawing growing backlash over projects that put captured carbon dioxide to work in oil production rather than storing it permanently.

The credit pays operators per tonne of CO2 captured and either stored or used, and enhanced oil recovery has long qualified as a qualifying use. That linkage sits at the center of the current dispute. Opponents argue the incentive should not subsidize CO2 that operators inject into aging reservoirs to squeeze out additional barrels, since the resulting combustion of that oil returns carbon to the atmosphere.

Supporters of the credit counter that enhanced oil recovery has financed much of the operating carbon capture infrastructure in the country for decades and that pipelines, injection wells, and monitoring built for EOR also serve dedicated storage. The dispute matters commercially: 45Q values, raised substantially under recent legislation, underpin project economics across the Gulf Coast and Permian Basin capture pipeline.

For operators and midstream players, the policy risk is now material. A rollback or narrowing of EOR eligibility would change hurdle rates for capture projects that assumed oil-linked offtake. Watch how Congress and the Treasury define qualifying use in upcoming guidance — that interpretation, more than technology cost, will shape which projects reach final investment decision.