U.S. Carbon Sequestration Activity Accelerates as Blue Hydrogen Projects Advance

With Section 45V hydrogen production tax credits still in flux, blue hydrogen projects supported by Section 45Q credits comprise most of the U.S. low-carbon hydrogen capacity in development currently. Section 45Q, which provides an $85/ton carbon sequestration credit, pre-dates the Inflation Reduction Act and is therefore seen as less at risk under the new administration.

Carbon from blue hydrogen plants will typically be sequestered in an underground injection well, in some cases a depleted oil or gas well. These injection wells are enabled by Class VI permits issued by the EPA or four states (Louisiana, North Dakota, West Virginia and Wyoming) that have been granted “primacy” to issue their own permits. Water contamination, seismic activity and potential migration to adjacent wells are key considerations in the permitting evaluation. Class VI permitting activity has been extremely slow over the past decade with just 11 federal permits and approximately 25 state permits granted to date. However, five of those 11 federal permits have been issued in 2025 and 164 more permits are currently under review (per the EPA Class VI permit dashboard), creating the potential for a sharply accelerating rate of authorization going forward.

ExxonMobil is among the leaders in providing sequestration services to the blue hydrogen industry. The Company will use a proprietary pipeline to transport captured carbon from customers in Mississippi, Louisiana and Texas to onshore and offshore storage sites in eastern Texas, including one site that is expected to be permitted in 2025. Exxon has already contracted to store carbon for five companies including CF Industries (two blue hydrogen sites), Linde’s Beaumont, TX blue hydrogen plant in development and Exxon’s own massive Baytown, TX blue hydrogen project (pending final investment decision). On its Q4 earnings call, CF Industries said it expects to begin realizing 45Q credits from an Exxon injection well in 2025.

Occidental Petroleum is another company with multiple injection well projects under development primarily through its “1PointFive” subsidiary. The Company was granted an EPA Class VI permit this month for a direct air capture project called Stratos. 1PointFive will also provide sequestration capacity at its Pelican project site for the “Blue Point” blue hydrogen plant in Ascension Parish, LA. Blue Point is being developed by a recently consummated joint venture between CF Industries, JERA and Mitsui.