July 25, 2024 - US tax credits for carbon capture and storage and carbon capture, utilization and sequestration will likely continue no matter what political party wins the 2024 presidential and congressional elections because the program has supporters in both, CSS and CCUS experts said July 24.

While several aspects of the US Inflation Reduction Act have been targeted for reduction or elimination by the Republican Party, the 45Q tax credit for CCUS projects has not, Keith Martin, co-head of projects at the Norton Rose Fulbright law firm, said during the second day of Infocast's CCS/Decarbonization conference in Houston.

Of the Inflation Reduction Act's main Republican targets if they sweep the election, support for electric vehicles had been what Martin expected to be the top choice for elimination, for example.

"On Section 45Q tax credits, I don't see those on anybody's repeal list," Martin said. "Those were increased and made easier to claim at [US Senator] Manchin's request to help the transition for states like West Virginia from coal to cleaner energy. If, despite expectations, 45Q credits end up being pared back, to help pay for the 2017 tax cut extension, keep in mind that whenever Congress pulled away incentives, it has always grandfathered people who have made some investments based on the existing incentives."

The 45Q tax credit is $85/mt of carbon dioxide permanently stored in a geological formation or $60/mt for CO2 used in other useful products (for example, chemicals) or used for enhanced oil or natural gas recovery, in which it is permanently stored.

"I think this is the rare piece of the puzzle that is, if not bipartisan, at least nonpartisan," Noah Deich, US Department of Energy senior advisor for the Office of Fossil Energy and Carbon Management, said during a keynote address.

"When it comes to carbon management, we're actually very optimistic that this is going to be an area that is fairly robust in whatever political situation we're going to be in, in 2025," Deich said. "The reason I say that is our policy framework is government funded but industry led. Our program is really congressionally funded, administration implemented and industry led, and I think the congressional support for our work has only grown in the past few years."

One key issue that has arisen for potential CCS/CCUS project developers since the August 2022 passage of the Inflation Reduction Act, has been obtaining the necessary permits, speakers at the conference said. The IRA raised the 45Q tax credit amount and made it easier for projects to qualify.

Deich said the DOE has tried to help facilitate applicants' efforts, in part, by providing "a common factual base on carbon management," to educate regulators and local communities about the risks and benefits of CCS/CCUS projects in their regions.

However, leaders on both sides of the aisle at US Senate Energy and Environment committees have expressed interest in easing permitting process, such as by setting a 150-day deadline to challenge infrastructure projects, Martin said.

Carbon Management Money Flow

During a panel discussion on the current state of CCS/CCUS market economics, Christina Staib, global finance lead at Global CCS Institute, a Melbourne, Australia-based development and finance company, said, "We're definitely seeing money flow from the US government to carbon management, and when you add to that the actions of US states, a lot of them are strengthening their frameworks throughout CCS, pursuing primacy."

Under primacy, a state agency has obtained permission from the US Environmental Protection Agency to serve as the lead permit-granting agency.

"You're seeing a lot of activity in the US, post-IRA passage," Staib said. "From a project economics standpoint, what we've heard from our members in the community is that the IRA is having an impact on a subset of projects. Today, we're seeing large projects move forward. We're also seeing small projects where there are minimal transportation costs."

Panelist Alex Tiller, CEO of Denver-based Carbonvert, a CCS project development and finance company, said the CCS/CCUS industry "has been on a slow simmer, starting to go to a boil."

CCS' early challenge was finding "pore space" where carbon dioxide could be sequestered indefinitely, but this is no longer the case, Tiller said: "What we're focused on is turning toward emissions capture. That seems to me to be the main challenge."

Justin Peltier, Kinder Morgan vice president for business development on energy transition ventures, added, "We're seeing more activity on the midstream side."

Minimizing Risk is Key

A key factor in facilitating CCS/CCUS projects is minimizing the risk that IRA payments may not be paid, said panelist Daniel Berger, senior vice president and head of tax insurance at Kansas City, Missouri-based Lockton, which describes itself as the world's largest privately held, independent insurance brokerage.

"The parties who are willing to invest in this space are looking for certainty that the tax credits are ultimately going to be there," Berger said. "From a contractual perspective, some of the challenges related to these entities are just in terms of how disproportionate the risk is relative to the potential economics involved."

Kinder Morgan's Peltier, meanwhile, said managing risk "is pretty critical."

"Everybody is trying to shove the risk of a project off to somebody else," Peltier said. "The Gulf Coast has a lot of projects in the area, but we don't really have a lot of underutilized infrastructure."

The lowest risk and best returns currently involve ethanol and natural gas processing, which "make some sense right now," Tiller said. "The next batch," which includes brownfield sites previously developed for another industry, are among "the hard ones," Tiller said. In contrast, undeveloped greenfield sites are easier to incorporate CCS/CCUS from the start.

The lowest risk and best returns currently involve ethanol- and natural gas-processing greenfield sites, which are easier to incorporate CCS/CCUS from the start, Tiller said.

"Those are the projects that make some sense right now," he said. "The next batch," which includes brownfield sites previously developed for another industry, are "the hard ones."