Can Updated Tax Credits Bring Carbon Capture Into the Mainstream?

by Emma Foehringer Merchant (GreenTechMedia) Expanded credits in the budget bill could “absolutely make the difference” for the economic viability of carbon capture and sequestration. -- Among the energy credits tucked inside the budget deal eked out in early February lies a controversial measure: carbon capture and sequestration (CCS) credits designed to push the technology from the clean energy margins toward the mainstream.

For years the technology has divided environmentalists and many working in the energy industry, even as some researchers argued for its essentiality in a decarbonized world. Now, modifications to an existing credit called Section 45Q offer more money per ton of carbon dioxide captured and remove a cap on how much plants can store.

The changes extend tax credits to carbon capture projects constructed over the next six years. Projects formerly received $10 for each ton of carbon captured and used for enhanced oil recovery and $20 for each ton captured and put “in secure geological storage” underground. The new credit bumps those sums to $35 and $50, respectively. It also eliminates a pre-existing annual volumetric cap of 75 million tons of carbon dioxide.

“The biggest obstacle is that carbon is a free pollutant. We don’t charge for carbon dioxide pollution, so there’s no direct financial incentive for a power plant to want to capture its CO2,” Jenkins (Jesse Jenkins, a researcher at the Massachusetts Institute of Technology Energy Initiative) said. “Without a clear financial upside, there’s very little reason for companies to pursue that risky technology development.”

Others see it as a form of the derided activity known as “picking winners.” Daniel Cohan, a professor of environmental engineering at Rice University, said a carbon tax would be more appropriate to let all technologies compete.

“One concern that I have with these tax credits is that they specifically incentivize one option to cleaner energy: carbon capture with fossil fuels,” said Cohan. “That gives it a competitive advantage against renewable energy options that might cut emissions even (more)."

Last year Mississippi and Southern Company shut down the carbon capture portion of the Kemper Plant, an integrated gasification combined cycle project that was billions of dollars over budget and years behind schedule. The project was designed to capture carbon dioxide emissions from lignite coal and received millions of dollars in federal government subsidies. The plant now burns just natural gas.

For carbon capture facilities near oilfields, the possibility of selling carbon dioxide for use in enhanced oil recovery -- even at a lower credit rate -- will likely yield higher returns than other types of carbon storage, making it an enticing option. READ MORE

Excerpt from Politico's Morning Energy: Sen. Heidi Heitkamp, who spearheaded the measure, is aiming to bring down the project costs of CCS technology, by allowing a broader group of facilities like factories and ethanol plants to claim the tax credit. Oil producers who use captured carbon for enhanced oil recovery will be eligible for a $35-per-ton tax credit, and anyone who permanently stores carbon underground can claim a $50 per ton. "Trust me, people are going to take advantage of this credit and, as a result, technology for carbon capture and sequestration and utilization is going to accelerate," she said. Heitkamp tapped a diverse array of allies ranging from climate hawks like Sheldon Whitehouse to pro-coal Republicans like John Barrasso and outside pro-business groups to overcome resistance from House Speaker Paul Ryan and House Ways and Means Chairman Kevin Brady.

Some critics see the credit as an unnecessary reward for fossil fuel companies whose climate benefits are counteracted by spurring additional oil production. The Natural Resources Defense Council, for example, has pulled out of the newly rebranded Carbon Capture Coalition, saying it does not support "subsidies for enhanced oil recovery." But Whitehouse said it was worth it to get Congress on the record about what a ton of carbon should cost. "Unfortunately, we had to build it into the tax code as a benefit rather than putting it in as a fee, which would be a much more economy-wide way to go, but I'll take that opening because now we're in the conversation about paying for carbon-free power," Whitehouse said. Read more. READ MORE