How U.S. Regulations Propel Oil Firms in Carbon Dioxide Removal

• In Event: The Political Economy of Energy

Abstract

What drives the world’s largest oil and gas firms to invest in Carbon Dioxide Removal (CDR)
technologies? 

Environmental politics scholars have recently put a lot of thinking into CDR and its techno-economic attributes as drivers of corporate engagement and investments (Battersby et al.,2022; Beaumont, 2022; Brad, Haas and Schneider, 2024). However, the early role of regulators in shaping the nexus between firms and CDR technology in the oil and gas industry has been largely neglected. We argue that early CDR-related policies in the U.S. have shaped strategic corporate decisions, particularly in the realm of intellectual property and the importance of know-how. We center our argument on the regulatory drivers behind these investments in the context of high risks, uncertain returns, and the absence of a strong market for CDR.

This argument aligns with recent discussions on state interventions and technology change, suggesting that government-led policies, driven by state interests, have initiated processes of
policy learning and reductions in technology costs (Breetz, Mildenberger and Stokes, 2018; Allan, Lewis and Oatley, 2021; Meckling, 2021; Nahm, 2021). In the case of CDR, early policies such as Climate VISION (2002), FutureGen (2003), and, more importantly, 45Q Credit for Carbon Oxide Sequestration (2008) aimed to redirect the technological focus of the largest oil and gas firms towards innovations in CDR. Oil and gas firms responded by increasingly applying for patents, reflecting a strategic alignment with the evolving regulatory landscape and the anticipated future significance of CDR technologies. 

We test this argument by analyzing early U.S. governmental CDR efforts characterized by region-specific policies and project-targeted funding. Our preliminary findings reveal that policy efforts initially did not lead to substantial new capacity-related investments. However, in the long term, it signaled a serious commitment to developing the CDR industry and motivated firms to make R&D investments that boosted patents for CDR-related applications. They specifically influenced firms that might expect their assets to get reevaluated as existential risks from climate change come to fruition (Colgan, Green, and Hale, 2021). These policies should be seen as intentional efforts to build the CDR industry in the emerging green economy (Allan, Lewis and Oatley, 2021).

Using data on patents and R&D investments from 2002 to 2022 for the 20 biggest oil and gas firms, we aim to (1) demonstrate how early CDR policies encouraged U.S. oil and gas firms to apply for patents, significantly influencing their strategic direction and (2) identify four categories of industry betting strategies/behaviors on CDR based on their characteristics of emission intensity, regulatory framework, and net-zero goals. Our preliminary findings indicate that the most emission-intensive companies, like Exxon, have pivoted towards CDR technologies, evident in both patents and new capacity investments. This proactive approach is also observed in other firms within the industry. Finally, the impact of policies can be seen in the recent increase in new capacity investments in CDR projects. In 2023 alone, 198 new facilities were added to the development pipeline, bringing the total to 41 projects in operation and 325 in advanced and early development stages (IEA, 2023). The United States has been at the forefront of this expansion, with 73 new facilities entering the pipeline in 2023.

Author

• Denis Lomov, University of California, Santa Barbara