While most of the power industry might assume that momentum for carbon capture, utilization and storage is stalled, a closer look reveals that this may not be the case.
Federal funding across the landscape of clean energy projects has been challenged since early 2025. The so-called One Big, Beautiful Tax Bill (or mega-bill) calls for a phased reduction in Inflation Reduction Act (IRA) investment and production tax credits for renewable energy (wind, solar, storage, geothermal, and nuclear) projects. Apart from potential impacts to transferability and direct pay provisions, however, the current language in the bill (as per the Manager’s Amendment RCP 119-3) largely is silent in addressing carbon capture, and the tax credits available under Section 45Q of the IRA have not been modified or challenged to date during the budget reconciliation process.
Existing grants from the U.S. Department of Energy (DOE) have experienced some slowdowns in processing, and funding opportunities through the DOE are being reevaluated with a new emphasis on economic viability of projects. On May 29, prior DOE awards for 24 projects totaling approximately $3.7 billion were canceled as a part of this review process. However, despite these challenges, the administration generally has taken a positive view on carbon capture.
What About Transportation and Storage?
Injection wells and sequestration are a significant component of the formula for carbon capture. While still facing uncertainty, an increasing number of states are gaining primacy that give them authority over Class VI injection wells for CO2. Primacy status allows states to avoid the requirement to obtain federal approval for these wells from the Environmental Protection Agency. With primacy status, it is expected that the time required for reviews and permitting of new injection wells could be shortened significantly, especially in states with a history of subsurface oil and gas exploration and production.
The implementation and expansion of pipelines is also faced with uncertainty. Although some interstate and intrastate pipelines for hydrocarbon products are moving forward, progress for CO2 pipelines is not as clear. Proposed CO2 pipeline projects generally continue to receive heightened scrutiny due to the transported product being CO2 rather than crude oil, gasoline, natural gas liquids or natural gas. Significant questions about eminent domain for CO2 pipeline rights-of-way also have emerged. Though federal policy currently allows eminent domain for such projects, some states — Iowa, for example — are potentially looking to implement a more restrictive approach.
Other Forces at Work
While there may be headwinds against projects in the clean energy category overall, there may be unique forces at work that could drive continued interest in carbon capture, particularly for projects with commercial business cases that make these projects economically viable with or without government-backed incentives.
It is likely that the DOE will increasingly prioritize projects that focus on energy security, resilience and energy affordability. Additionally, carbon capture projects that make a case for commercial viability are likely to be favored.
There are several projects that are poised to receive final investment decisions (FIDs) relatively soon. Should those projects receive notices to proceed, they could serve as major bellwethers that boost confidence for other projects across multiple industries. Projects in the power, cement and pulp and paper sectors are examples of those that could move forward if they pencil out for profitability even without federal incentives.
Revenue Streams
There are certain carbon capture projects that have potential to create revenue streams based on market demand. For example, a power plant with carbon capture units installed might be able to command premium power rates charged to offtakers or large industrial customers that are committed to reducing their carbon footprints. Other value streams could be realized through carbon dioxide used for enhanced oil recovery processes or by end users like cement plants that have integrated low-carbon processes.
CO2 removal processes utilized within the pulp and paper industry are another potential value-driver via carbon dioxide removal (CDR) credits that can be sold to large corporations to help meet carbon neutrality goals. Microsoft recently announced that it had signed a contract to buy carbon credits equivalent to removal of 6.75 million metric tons of carbon dioxide over the next 15 years. Under this arrangement, Microsoft would buy the credits from a project in Louisiana that uses biomass to generate energy and then captures the carbon dioxide emissions and stores them underground. The transaction is intended to help Microsoft meet its goal of becoming carbon negative by 2030 through the purchase of CDR credits.
In the power sector, some interest remains for carbon capture units installed on coal-fired power facilities. Though retrofits on coal units will likely be economically challenged, the large volumes of CO2 that could be captured and sequestered, or utilized in certain industrial processes, could keep these projects under consideration, particularly if tax credits available under section 45Q of the IRA remain in force.
Positioning for Success
The opportunities will come with challenges of course, and further shifts in policy priorities could work against the carbon capture sector. However, it’s worth remembering that these projects often involve a multi-year development and implementation cycle. Policy priorities could shift again under future administrations, so building business cases that focus on long-term realities can be worth considering.
With multiyear project durations, commencement and continuation of studies and activities needed to support permitting or preliminary engineering should be part of the conversation. These low-cost steps might include engineering and design considerations that incorporate flexibility to retrofit carbon capture units later after a facility is operational.
Prudent steps taken now could help early movers position for future success. Despite current market uncertainty, there is continued interest in carbon emissions reductions. Power sector projects may be in a wait-and-see mode currently, but there are significant factors with regard to load growth and demand, associated with sectors such as data center market growth, that could significantly influence the advancement of the carbon capture market.
Developing strategies for commercially viable carbon capture projects should be part of discussions now to position for future success as market conditions continue to evolve.
Carbon capture, utilization and storage (CCUS) solutions remain as important elements in the drive to reduce carbon emissions.