WASHINGTON, June 17 (Reuters) - A U.S. Senate panel

proposed making the tax credit for capturing carbon emissions

for recovering oil equal to the $85/metric ton tax credit for

permanently burying those emissions underground, a boon for oil

and gas producers.

The finance committee proposed the change to the so-called

45Q tax credit, which was part of the 2022 Inflation Reduction

Act, in its draft bill that forms a central part of the

sprawling Republican budget package. The House of

Representatives version of the bill that passed by one vote last

month in that chamber left the credit for enhanced oil recovery

projects at $60/metric ton.

The change reflects a proposal made by Wyoming Senator John

Barrasso, a Republican, to put EOR projects at parity with

carbon sequestration that got support from senators from other

oil-producing states like North Dakota and Louisiana.

Under the IRA, former President Joe Biden's signature

climate law, tax credits for permanent removal had a higher

value than for EOR because of concerns that carbon capture and

direct air capture technologies would encourage oil companies to

keep drilling for oil, undermining the fight to limit emissions

linked to global warming.

Occidental, which has two direct air capture projects in

Texas, is planning to permanently remove carbon and store it

underground and use CO2 to recover oil, which it says makes the

barrels more environmentally friendly.

Occidental declined to comment on the Senate change. The

Carbon Utilization Research Council, which Occidental chairs,

welcomed the decision to put EOR at parity with sequestration.

"As production matures with current recovery methods, there

is critical need for large-scale injection in formations which

will need billions of tons of CO2 captured from industrial

sources to sustain oil and gas production with EOR," said

Shannon Angielski, executive director of CURC, adding that the

barrels of oil produced would be lower carbon intensity.

Carbon removal advocacy group Carbon180 said it could risk

pulling investment more toward fossil fuel production.

"Federal policy should prioritize durable carbon removal

projects that can create prosperity for communities across the

country - not expanded oil production," said Carbon180 director

Erin Burns.

Other oil companies involved in carbon capture and DAC

include Exxon and Chevron ( CVX ).

Sasha Mackler, global policy & advocacy for ExxonMobil Low

Carbon Solutions, told Reuters that the company did not lobby

for bringing the EOR tax credit to parity with carbon

sequestration.