Carrots Move Iron. Sticks Don’t.

When I was a young engineer, Section 29 of the tax code was paying producers a real credit on tight gas, coalbed methane, and Devonian shale wells that were otherwise uneconomic. I was on the drilling side in those years, and I watched operators race into basins they had no business drilling, stand up entire companies on the back of that credit, and then scramble when the deadlines tightened and the in-service cutoffs loomed. Some of them made it through. Plenty of them did not. The ones that did had built an actual business underneath the credit. The ones that did not had built a credit-shaped company, and when the shape of the credit changed, the company went with it.

I have thought about that era more than once in the last few months, and I thought about it again when I was listening to Alex Economides talk with Kevin and Philip about carbon capture.

Alex said something in that conversation that caught me off guard. Not the math, though the math is good. What caught me was his offhand observation about policy.

The Irony Nobody Expected

Alex looked at Kevin and said, roughly, how ironic is it that the United States is now the best place in the world to run a carbon capture project? He said it almost laughing, because nobody would expect it. Europe has been the global headline act on climate policy for most of the last two decades. Canada has carbon pricing. The United States has historically been the holdout. And yet, as Alex was walking Kevin and Philip through the math, it became clear that the operator who wants to actually capture carbon and make money doing it has one obvious place to set up shop. And that place is here.

I did not see that coming, and I have been watching this industry for forty years. If you had told me in 2015 that by the middle of this decade the United States was going to have the most favorable carbon capture economics on the planet, I would have asked you what you were drinking. But that is where we are.

And there is a specific reason why, and it is worth every founder in this industry understanding it clearly.

Three Countries, Three Completely Different Answers

Alex walked through three policy environments in that conversation, and the contrast between them is the whole lesson. Look at them side by side and you see it.

In the United States, Uncle Sam pays $85 a ton, tax-free, for captured CO2. That is it. No complicated regulations telling you what you can and cannot emit. No penalty system you have to navigate. Just a straightforward credit that says, if you capture a ton of carbon, the government will write you a check for it, and you can sell the CO2 itself on top of that. Alex called it a huge cherry. He was not exaggerating.

In Canada, the model is inverted. You pay a penalty of about $80 a ton if you emit CO2. If you turn around and capture that same CO2 to prevent the emission, the government does not refund the penalty. Instead, they let you go sell that fact on the voluntary carbon market, where, as Alex put it plainly, you might get about twenty bucks for it. So the operator is paying eighty and getting back twenty. That math, in Alex's words, does not make a lot of sense. He was being polite.

In Europe, the policy is well-intentioned but the economics do not close. There are regulations that are starting to limit emissions, which Alex acknowledged is fertile ground for his technology. But the energy costs in Europe are higher, which eats into the profitability of running his capture system, and the value of European carbon credits is not high enough to fill the gap. His company is looking at Europe, but, in his words, they are not seriously considering it. They are seriously considering Canada and the United States. And Canada, as we just saw, has its own problems.

What This Actually Tells You

Here is what I have seen over forty years of watching how industries respond to policy. Operators do not do things because you tell them to. They do things because the math tells them to. If you want an industry to move, you do not lecture it. You change the math.

A penalty changes the math in the wrong direction. It tells every operator to spend as little as possible avoiding the penalty and zero dollars doing anything more than that. It does not fund innovation. It funds compliance departments. And as Alex showed, if you design the penalty poorly, you can actually penalize the very operators who are trying to solve the underlying problem. That is the Canadian story in a sentence.

An overly complicated regulatory regime changes the math in an uncertain direction. Operators cannot tell if the thing they want to build will be profitable under next year's rule set, so they do not build it. That is the European story in a sentence.

A clean, straightforward credit that pays real money for a clearly defined outcome changes the math in exactly the way an engineer would want it changed. It tells every operator in the country: if you can capture a ton for less than eighty-five dollars, there is a business in it. Go build. That is the American story in a sentence. And that is why, against every expectation I had twenty years ago, the iron is moving here.

One Detail Worth Sitting With

Alex made a point in that conversation that I think matters more than anyone listening to it for the first time might realize. He pointed out that the current $85 45Q credit level was set under the Biden administration. And then he pointed out that it was kept under the Trump administration. One raised it. The other kept it. His point, and it is a good one, is that this credit has outlived the political noise around it. It is not a red policy or a blue policy. It is a working policy, and both sides of the aisle have looked at it and said, fine, leave it.

That is rare. In forty years of watching tax code provisions in this industry come and go, the ones that have lasted are the ones where the math made sense to everybody once they did it. Section 29 lasted because it produced gas the country needed. 45Q is lasting because it produces emissions reductions at a cost the country can absorb, while creating a private-sector industry on top of it. When both sides of the aisle agree not to mess with something in Washington, that is usually a sign the underlying structure is sound.

But, and this is the part every founder needs to hear, that does not mean you can build your whole company on the assumption that the credit will never change. Section 29 eventually changed. The investment tax credit has been tweaked more times than I can count. Every federal incentive in this industry has been modified at some point. The operators who thrive across all of those modifications are the ones whose businesses still work if the number moves. The ones who get wiped out are the ones whose businesses only worked at one specific number.

The Quiet Race Nobody Is Watching

There is a race going on right now in this industry that most people outside of it are not paying attention to. Operators in the United States are quietly figuring out how to deploy carbon capture at costs that would have been considered impossible five years ago. They are doing it because the 45Q credit cleared the path for them. They are not waiting for Europe to lead. They are not waiting for Canada to fix its penalty structure. They are building the iron and getting it in the field.

See, the other guy is running his company on forty-dollar-per-ton capture technology inside a policy regime that pays him eighty-five. You are still arguing about whether carbon capture is real. He is already collecting the check. That is what a well-designed carrot does to an industry. It does not motivate. It sorts. The people who are ready to move are moving. The people who are not are being left behind, and in five years they are going to wonder how it happened that fast.

Final Thought

The best policies I have seen in forty years of watching this business all share one trait. They reward the people who were already going to build the right thing, and they get out of their way. They do not try to teach operators what to value. They do not moralize. They do not legislate behavior. They change the economics of the decision and then trust the operators to do what operators have always done, which is follow the money to wherever the work actually pays.

That is what the 45Q credit is doing right now. It is not convincing anybody. It is not preaching. It is just sitting there, an $85-a-ton cherry on top of a real business, waiting for the operator who is ready to build underneath it. Alex and Occam's are ready. A handful of others are ready. Most are not, and that is fine. The ones who are ready are going to compound their head start.

Policies come and go. The ones that work are the ones that get the math right and get out of the way. Build to where the math works, and build for the day the cherry is not there anymore. That is how you outlast the policy that helped you start.

Alex Economides is a fractional CFO at Occam's Technology and an energy transition advisor to New Tech Global. He holds two US patents on carbon market design. On Wisdom at the Wellhead, Kevin Fischer and Philip Richard sit down with him to work through the policy contrast between the United States, Canada, and Europe, why the 45Q credit is doing what penalty regimes have failed to do, and what an operator actually does when the math finally lines up with the mission.