Major Victories for Carbon Capture in US Bill

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Companies involved in carbon removal are some of the biggest winners in sweeping new US legislation that would provide hundreds of billions of dollars in incentives and other provisions to accelerate clean energy projects and reduce emissions. The Democrat-led Inflation Reduction Act (IRA), which narrowly passed the Senate last weekend and is expected to clear the House of Representatives this week, has won high praise from industry groups and quiet optimism from public companies with substantial exposure to direct air capture (DAC) and carbon capture and storage (CCS) technologies.

More broadly, the legislation is a signal that the US government sees carbon removal as a key tool in fighting climate change across industrial sectors. Although CCS and DAC both have many hurdles to overcome, on everything from transportation to scale, those most optimistic about the legislation say it could spark a fresh wave of projects and investors globally and help knock down some of the roadblocks. “We cannot overemphasize the transformative effect that the [IRA] will have on the deployment of carbon capture technologies,” Matt Bright, policy manager for carbon capture at the Clean Air Task Force, said in a statement. He expects the bill to have “a profound ripple effect on the rest of the globe,” as incentive schemes make it easier to slash emissions from even some of the hardest-to-abate sectors. “Demonstrating that a carbon capture and removal industry is viable here in the US will likely mean that other countries can seize the opportunity to decarbonize their cement and steel industries, which collectively account for 12% of global emissions,” he says.

Wish List

The legislation reads almost like a wish list from the carbon removal industry: significantly higher tax credits for CCS and DAC under a section of past legislation known as 45Q, including for enhanced oil recovery (EOR); a “direct pay” and credit monetization option for companies with smaller tax burdens; lower capture thresholds to qualify for the 45Q credits; and an extended deadline to break ground on qualifying projects. Researchers at Princeton University expect policies in the bill to increase the use of carbon capture 13-fold by 2030 to around 200 million tons per year of CO2 captured for storage. They say that could rise as high as 450 million tons/yr by 2035, assuming sufficient investment in transport networks and storage basins.

Beefing Up 45Q

The enhancements to 45Q will have the biggest impact. The bill's 70% increase to $85/ton makes point-source CCS economic for more industries, from gas-fired power to cement and steel, analysts say. That gives companies looking to transport CO2 captured from industrial emitters — known as “CCS as a service” — an expansive base of new potential customers. “I think that you will see a lot of new industry coming in and just the total market getting much bigger,” Denbury CEO Chris Kendall told investors on a quarterly earnings call. Up to 1 billion tons/yr of CO2 could be economically captured with the proposed changes to 45Q, according to Chris Davis, senior vice president of newly formed Milestone Carbon, speaking on a panel at the Enercom conference this week.

Direct air capture gets an even bigger boost, with credits more than tripling to $180/ton for storage and $130/ton for uses like enhanced oil recovery (EOR). Occidental Petroleum, which is developing the world’s largest DAC plant for an EOR project in Texas, said the enhancements to 45Q will allow the company to accelerate its carbon-removal plans and improve its technology more quickly. “It gives certainty in some of the revenue, to allow us to build this development,” Richard Jackson, Oxy’s head of US onshore and carbon management operations, said on a quarterly conference call. He said Oxy, like the industry at large, must lower costs and improve the technology. "So, having certainty to be able to accelerate that development plan, we believe, allows us to reduce those costs quicker, and it creates a sustainable business sooner.”

Expanding the Market

Current 45Q policy requires projects to start construction by the end of 2025, a tight timeline for even the most advanced operators. If the new bill gains final passage and is signed into law, developers will have until Jan. 1, 2033 to break ground, allowing companies to secure financing and offtake contracts, and finalize the currently lengthy permitting process. A wider swath of facilities will also be eligible for 45Q. Most projects must now capture at least 100,000 tons/yr to get the tax credits. Under the IRA policies, a point-source operation would need to capture just 12,500 tons/yr to qualify; a DAC facility would only have to extract 1,000 tons/yr. That will give opportunities to a wider range of players, Steve Pattee, vice president of consultancy Lonquist Sequestration, tells Energy Intelligence. “45Q will bring more people to the table, the timeline makes [projects] more probable, and then the threshold further increases the expanse of who can qualify,” he says.

The IRA clearly represents a policy win for carbon-removal proponents. And while there is little for them to dislike in the bill, future lobbying efforts will likely target ongoing requests for state primacy in approving “Class VI” permits for CO2 sequestration wells, a process that can take years to complete at the federal level. Still, Denbury’s Kendall says CCS “now has the necessary public policy support to incentivize rapid development of capture projects.”

Policy and Regulation, Carbon Capture (CCS), Low-Carbon Policy, Emerging Technologies, CO2 Emissions, Corporate Strategy
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