What’s Behind Exxon’s Big Carbon Capture Deal? Here Are 3 Theories.

America’s largest oil and gas company just secured the missing elements for it to become one of the nation’s most powerful players in the nascent carbon capture and storage industry.

ExxonMobil announced last week that it was purchasing Denbury Inc., giving it access to an extensive network of pipelines for transporting carbon dioxide and land holdings for injecting the pollutant underground. The nearly $5 billion all-stock sale is the biggest “carbon management” deal yet.

Carbon management is an emerging industry premised on constructing a labyrinth of factories and pipelines to capture emissions from the smokestacks of industrial facilities, and also directly from the atmosphere, and pump them into the Earth’s crust. Exxon has espoused its work on carbon capture for years, but the company’s investments have never matched its rhetoric, fueling accusations of greenwashing. Now, it suddenly seems to be positioning itself to become this carbon maze’s lead architect.

What does it all mean? The Biden administration and many clean energy researchers believe carbon capture may be the only way to reduce emissions from certain sectors like chemical manufacturing, steel making, and cement production — at least in the near term. Some argue that a company like Exxon has the expertise and capital to build this infrastructure, and that carbon management presents a new potential business model for the company. But the idea is controversial among many climate advocates who worry that it will serve solely to give Exxon and others license to continue digging up and selling fossil fuels.

Of course, it’s impossible to know Exxon’s intentions without being in the boardroom. But when I spoke to experts about what the acquisition of Danbury signaled, three theories emerged about the company’s motivations.

1. Exxon is starting to take the energy transition seriously.

Exxon has claimed to be a leader in carbon capture for years, but until recently, the company’s only U.S. project consisted of a single site in Wyoming where Exxon processes natural gas. The carbon collected there was sold to other fossil fuel companies, including Denbury, to inject into depleted oil wells in order to squeeze more crude out of the ground — a technique known as enhanced oil recovery.

But the company has been under increased shareholder pressure over the last several years to do more to reduce its emissions and invest in clean industries. Exxon has long lagged its peers in even disclosing its carbon footprint, let alone setting targets to reduce it. But after activist investors won three seats on Exxon’s board in 2021, the company launched a Low Carbon Solutions business focused on carbon capture, clean hydrogen, and biofuels.

In just the past year, the new outfit has made deals with a handful of industrial emitters throughout the Gulf Coast to manage their carbon dioxide emissions. Exxon has announced contracts to haul off the carbon captured from an ammonia plant in Louisiana — the largest greenhouse gas emitter in the state — as well as a steel plant owned by Nucor and a yet-to-be-built hydrogen plant in Baytown, Texas. It also formed a partnership with Mitsubishi Heavy Industries, which has developed a leading solution for capturing carbon from industrial smokestacks.

The deal with Denbury will significantly speed up the company’s ability to deliver on those agreements. It gives Exxon access not only to 1,300 miles of carbon dioxide pipelines, but also to underground storage capacity estimated at 2 billion metric tons of CO2 — close to a third of what the U.S. emitted in 2021.

To Neil Quach, a former oil and gas analyst for Citigroup and UBS who now works at the think tank Carbon Tracker, the deal shows that Exxon is taking the low carbon future seriously — at least more seriously than its peers like Chevron. He recently authored a paper criticizing Exxon’s strategy, arguing that the company’s oil and gas portfolio was “highly vulnerable to the energy transition.”

“I’ve been arguing that they have to get into transition businesses in a more material way, and this is one step toward that,” he told me. At the same time, though, he noted that the $5 billion deal was still only a drop in the bucket — Exxon turned a $56 billion profit last year and is valued at $400 billion.

2. Exxon is angling to make a quick buck off the government.

Though Exxon appears to be starting to build out a material carbon capture business, to some observers, the key question is, to what end?

“I’m not too enthralled with this purchase,” Dennis Wamsted, an energy analyst at the Institute for Energy Economics and Financial Analysis, and frequent critic of carbon capture, told me. “I see it as a way for Exxon to harvest subsidies from the U.S. government,” he said. “I don’t see this as a legitimate business effort by Exxon to lower its impact on the climate going forward.”

Wamsted was referring to tax credits for carbon capture that were recently juiced by the Inflation Reduction Act. Companies can now earn up to $85 for every metric ton of CO2 they collect from the smokestacks of factories and sequester — making it a potentially profitable endeavor for the first time.

There’s no question that Biden’s signature climate policy is a key motivator for Exxon and also Denbury. Previously, Denbury’s business model centered on using carbon dioxide for enhanced oil recovery. But the company has recently been scooping up acreage in Alabama, Louisiana, Mississippi, Texas, and Wyoming — 10 sites in all — for pure carbon sequestration.

This is what the tax credits were designed to do — otherwise, why would Exxon or Denbury bother spending money to bury carbon when it’s free to dump it into the atmosphere and profitable to use it to extract oil?

I asked Wamsted what would constitute a legitimate effort and whether it matters if Exxon is “harvesting subsidies” if the result is to lower emissions. But he’s not convinced the efforts will actually lead to climate-relevant results. Wamsted acknowledged that it’s challenging to cut emissions from certain industries like steelmaking in other ways, but he’s skeptical that carbon capture will ultimately be the best way to do it. In the case of Nucor, for example, Exxon’s project won’t fully eliminate the emissions produced by the steel plant.

“If there are things that work in five years I’ll give them credit for it,” Wamsted said, “but we have a very short timeframe here to try to get our carbon emissions under control.”

Many of Wamsted’s concerns, like of the safety and security of storing carbon underground, are shared by communities that live near Exxon’s potential injection sites, which could be a hurdle for the projects as they unfold. Many in the environmental justice movement fear that carbon capture will extend the life of polluting plants they would rather see shut down, and could even amplify the risks of living near these sites.

“In the real world, this is an experiment,” Beverly Wright, the executive director of the Deep South Center for Environmental Justice, told The Washington Post. “And this experiment is going to be conducted on the same communities that have suffered from the oil and gas industry.”

3. Exxon is hedging its bets.

If there are two potential futures — one where the world allows the production of fossil fuels for decades to come, and one where production is forced to wind down — perhaps Exxon is just trying to prepare for both scenarios.

“When I looked at the Exxon investment in Denbury, I was curious if it actually signaled a change in how the company was thinking about the future,” Andrew Logan, the senior director of oil and gas at the sustainable investing nonprofit Ceres, told me. “Is it actually thinking the world is going to proceed toward decarbonization, and investing accordingly? Or is this just a way to cover the bases in case things don’t go as they expect?”

Since the Inflation Reduction Act completely changed the economics of carbon capture, Exxon doesn’t have to have had some big change of heart about the energy transition to see it as a good bet. And there’s no indication the company is slowing down its fossil fuel business. CEO Darren Woods announced in early June that he aimed to double the amount of oil Exxon fracks in the U.S. in the next five years. The acquisition of Denbury also comes with significant oil production capacity, including a new enhanced oil recovery project called the Cedar Creek Anticline expected to produce 12,500 barrels per day by late 2024. But in taking over Denbury’s pipelines, Exxon is also better positioned to grow its carbon capture business if it makes sense to.

One of the reasons deciphering all this is so hard is that for a long time the promise of carbon capture technology was used as a way to slow progress, and now it could actually bring about real world emission reductions. But that still depends on how it’s implemented, and whether or not it enables the continued use of fossil fuels.

“In a way, it makes it more complicated because you’re actually gonna see stuff built in a way that we haven’t for the last two decades,” said Logan. “But it still does not remove the need to take much more ambitious steps to bring down emissions elsewhere in the industry.”