Will Carbon Capture Finally Make A Breakthrough In The United States?
Carbon capture and sequestration ("CCS") technology has the ability to capture up to 90% of carbon dioxide emissions produced by fossil fuel in power plants or industrial processes. Due to the intermittent nature of renewable energy and the still high cost of battery storage, CCS could be an important piece of a low carbon energy solution in the United States. Unfortunately, CCS projects have struggled due to high costs and cost overruns. As a result, there are currently only 18 large-scale CCS facilities in operation worldwide and only one in the United Statesthe 240-MW Petra Nova power plant located near Houston, Texas.
According to the IEA's Sustainable Development Scenario, 14% of cumulative emissions reductions are expected to come from CCS. This will require 1,000 to 3,000 CCS facilities by 2040. In order to incent additional development of CCS projects, in 2018, Congress passed the FUTURE Act, which substantially expanded the 45Q tax credit related to CCS projects. Importantly, the law removed the 75 million metric ton cap on new CCS projects and increased the tax credit for captured carbon used in enhanced oil recovery ("EOR") from $10 to $35 per metric ton and the tax credit for other CCS projects, including those with non-EOR geologic storage, from $20 to $50 per metric ton. In order to qualify for the 45Q tax credit, construction on the CCS project must begin before January 1, 2024.
Despite the law being passed in 2018, the IRS waited more than a year to issue a notice seeking comments. Final IRS regulations are critical for both project developers and investors to ensure their project will qualify for the new tax credit before making development and investment decisions. After a yearlong delay and pressure from Senators John Barrasso (R-WY), Shelley Moore Capito (R-WV), and Sheldon Whitehouse (D-RI), the IRS finally released Notice 2019-32 on May 2, 2019, seeking public comments on the 45Q tax credit. Final regulations are expected to be forthcoming. CCS proponents hope that the enhanced 45Q credit will jump-start the industry; indeed, the IEA estimated that it could result in up to $1 billion in capital investment in CCS projects over the next six years.
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