Biden's Investing $1.2 Billion to Combat Carbon Dioxide Pollution -- and Occidental Petroleum Stock Could Skyrocket Because of It

The Biden administration announced plans to invest up to $1.2 billion to kick-start the country's carbon capture and storage industry. As part of the President's Investing in America agenda, the funds will help advance the development of two commercial-scale direct air capture (DAC) facilities in the Gulf Coast region. These facilities would pull carbon dioxide directly from the air. It would then be sequestered underground or utilized. 

Occidental Petroleum (OXY -0.15%) subsidiary 1PointFive will receive one of those grants. The company will use the money to help fund the development of its South Texas DAC hub. It's one of several carbon capture-related solutions the company is developing. It sees a massive opportunity in the sector, which could be a major upside catalyst for its stock.

Laying the groundwork

Occidental's 1PointFive subsidiary is a carbon capture utilization and sequestration (CCUS) platform focused on helping limit the rise in global temperatures to 1.5 degrees Celsius by 2050 to prevent the worst impacts of climate change. It's taking a multipronged approach by investing in various solutions to reduce carbon emissions and utilize the greenhouse gas. 

The Occidental Petroleum arm started building its first DAC facility last year in the Permian Basin region of Texas. The company expects to spend around $1.1 billion to build the world's first large-scale DAC facility. It should pull up to 500,000 metric tons of carbon dioxide from the air each year. It would use that carbon dioxide for its enhanced oil recovery operations in the Permian Basin by injecting it into legacy oil fields, where it will increase pressure to boost production. 

That's the first of many plants the company hopes to build. It's already advancing additional facilities, including the South Texas DAC project that the Biden administration is now supporting with a grant. This DAC facility would be even larger than the first one, with the capacity to remove up to 1 million metric tons of carbon dioxide per year. Occidental would sequester this carbon dioxide in underground saline formations. The company has secured 106,000 acres of pore space in the Kings Range region, enough to permanently store up to 3 billion metric tons of carbon dioxide. 

The company sees the potential of developing 100 DAC facilities by 2035, driven partly by the Inflation Reduction Act (IRA). That legislation makes CCUS more economical, incentivizing Occidental to invest capital into developing facilities. 

Working to capture a potentially massive opportunity

Occidental Petroleum believes CCUS will become a major commercial market in the coming decades. The company estimates it could eventually become a $3 trillion to $5 trillion global industry. It could eventually make as much money from CCUS as it currently generates from producing oil and gas. 

It's not alone in this assessment. ExxonMobil (XOM -2.78%) sees CCUS growing to a $4 trillion industry by 2050. The oil company believes it could be a multibillion-dollar revenue stream for it in the future. Those earnings would be a lot less volatile than its oil and gas income because they'd be from stable, long-term, fee-based contracts. This market potential is driving Exxon's acquisition of Denbury Resources to accelerate its ability to develop carbon solutions.  

Both companies are already starting to commercialize carbon solutions. For example, Occidental has signed several contracts with companies that are purchasing carbon-removal credits supported by its DAC projects. For example, Japan's largest airline recently agreed to purchase 10,000 metric tons of carbon-removal credits for three years starting in 2025, supported by one of its DAC facilities. Meanwhile, Exxon signed a landmark agreement with CF Industries last October to capture and permanently store up to 2 million metric tons of carbon dioxide per year from one of its manufacturing complexes in Louisiana. These agreements showcase the growing commercial viability of carbon capture and hint at its potentially massive market potential. 

A bold bet on a lower carbon future

Occidental Petroleum is betting heavily on carbon capture. It believes this technology is the key to reducing carbon emissions and can be a highly lucrative business. This wager is getting a boost from the Biden administration, which is helping kick-start the development of its next DAC plant. These investments put the company in an excellent position to capture a meaningful portion of the potentially massive CCUS opportunity. It represents an enormous upside catalyst for the stock, which could skyrocket if CCUS takes off.