Department of Energy Funding Cuts
In 2024, DOE ARPA-E's budget was cut by $10 million, which affected federal support for CCS and Class VI well research and pilot projects. Then, in May 2025, DOE proposed over $1.2 billion in cuts to carbon capture initiatives, reducing funding for ongoing projects. The agency also canceled 24 clean energy and CCS projects, withdrawing a total of $3.7 billion in previously earmarked funding.
All 24 DOE-canceled clean energy projects are CCS/CCUS and industrial decarbonization initiatives aimed at reducing or managing CO₂ emissions. But of those, only two projects directly reference subsurface CO₂ storage or sequestration, which would have required Class VI-compatible geologic storage development.
Later, in October 2025, DOE announced the termination of 321 financial awards supporting 223 projects, totaling approximately $7.56 billion in federal cost-share funding. These terminations covered six DOE program offices, including the Offices of Clean Energy Demonstrations, Energy Efficiency and Renewable Energy, Grid Deployment Office, Manufacturing and Energy Supply Chains, ARPA-E, and Fossil Energy, affecting a wide range of CCS, carbon-management, and clean-energy initiatives. The 321 terminated awards funded a broad range of early-stage CCS and carbon management initiatives, covering CCS, direct air capture, CO₂ storage, hydrogen, and other clean energy demonstration projects.
Though federal funding has been cut, some companies have announced they are continuing to advance their CCUS and Class VI projects, using funding from private and state-backed investment sources.
Updates to the 45Q Tax Credit
Recent updates to Section 45Q of the U.S. tax code have reshaped the financial landscape for CCS projects. The 45Q program provides tax credits for CO₂ that is permanently stored underground or used in eligible commercial applications. To claim the 45Q tax credit, operators indicate the credit on their tax returns. The 2025 One Big Beautiful Bill Act maintains the credit rates. Taxpayers with carbon reuse projects or who geologically sequester CO₂ in oil and gas fields will still receive $85 per ton for point-source capture and $180 per ton for direct air capture of CO₂, according to the Carbon Capture Coalition.
However, project owners must comply with new eligibility rules, including restrictions on foreign ownership and assistance for taxable years beginning in 2026. These new eligibility rules, combined with the DOE funding cuts from May and October 2025, make it more difficult for some CCS and Class VI well projects to meet the prerequisites needed to claim 45Q tax credits. Additionally, many projects may lack the resources to complete Front-End Engineering Design (FEED) studies, permitting, or pilot-scale demonstrations, which are critical for securing financing and demonstrating technical feasibility.
Federal CCS Support Moving Forward
These federal funding changes highlight a shift toward supporting established, large-scale CCS projects with demonstrated feasibility and the potential for significant emissions reductions. Early-stage pilot programs may require alternative funding to continue testing and development.
DOE’s cuts do not outright halt Class VI well development. However, current funding models reduce cost-share support for critical permitting, FEED studies, and pilot demonstrations, which may make it more challenging for projects to reach operational status and qualify for 45Q tax credits.