Climate Law’s CCS Windfall Is almost 2 Years Old. Is It Working?

July 29, 2024

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by Carlos Anchondo (E&E News Energywire) ... Last week, the IRS released new guidance for companies planning to claim 45Q. It contains details on what should be included in a life cycle analysis report to determine the amount of CO2 either captured from the atmosphere or “displaced from being emitted” into it.

The Carbon Capture Coalition, which supports increased deployment of carbon management technologies, said the guidance “provides more clarity and transparency” to the application process.

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EPA has faced criticism over how long it takes to review Class VI permit applications. In January, the agency issued two such permits — the first it had issued in nearly a decade.

Roughly a month later, however, a petition to review those permits was filed with EPA’s Environmental Appeals Board and briefs in the case continue to be filed.

Xan Fishman, senior director of the energy program at the Bipartisan Policy Center, a think tank, said it was encouraging that EPA decided to issue top enforcement authority over Class VI wells, or “primacy,” to the state of Louisiana.

A third of all Class VI applications to EPA were for projects in Louisiana, so letting the state “handle those gives [EPA] a lot more bandwidth to do the reviews” on applications for Class VI wells in other states, Fishman said.

He said there’s a desire to cut down on how long it takes the agency to process Class VI permit applications, adding that “what we want is a process that’s both efficient and safe.”

(Remmington) Belford, the EPA spokesperson, said the agency instituted a goal in late 2022 of issuing Class VI permitting decisions within 24 months of receiving a complete application.

“This time frame is dependent on several factors, including the complexity of the project and the quality and completeness of the submitted application,” Belford said.

Several environmental groups objected to EPA’s decision to grant primacy to Louisiana, claiming the state couldn’t handle the program. Some watchdog groups and politicians in Texas have opposed an effort by the state to also secure primacy.

Carbon capture challenges

Another challenge for carbon capture is the speed that federal agencies are issuing permits for projects, as well as increasing costs that can diminish the reach of $85 per metric ton.

McConnell (Charles McConnell, executive director of the Center for Carbon Management in Energy at the University of Houston)said there’s a mismatch between the Biden administration’s goals on CCS — noting it’s a core part of the EPA power plant rule issued in April — and how fast it moves on permits.

“And so, we’ve got a real pickle here,” McConnell said. “We’re trying to advance an energy program to reduce emissions and at the same time looking at investments and cost creep that we haven’t seen in quite some time.”

Uncertainty around permits — whether it’s for pipelines, injection and installing a carbon capture unit at facilities and requirements that come with IRA funds — adds to the hurdles.

McConnell said requirements that the federal government has attached to IRA funding opportunities, including those like developing community engagement plans and environmental justice commitments, add to project development work.

Environmental justice includes the fair treatment and meaningful involvement of all people in the development, implementation and enforcement of environmental laws and policies.

The White House didn’t respond to a request for comment this month about the pace of CCS deployment in the United States or IRA funding requirements. But the administration has said that the Inflation Reduction Act should help spur the industry, which has not received as much support in the past as many say it has.

“There’s a significant misconception that there’s always been significant federal policy support for carbon capture and storage,” Brad Crabtree, DOE’s top official in the Office of Fossil Energy and Carbon Management, told E&E News in a March 2023 interview.

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More changes to 45Q?

Additional policy mechanisms will be needed to help drive greater deployment of CCS, said Jessie Stolark, executive director of the Carbon Capture Coalition, which includes more than 100 companies, unions and environmental policy organizations that support deployment of carbon management technologies. Those could range from federal efforts to “buy clean,” or low-carbon materials, to states looking at electricity standards, she said.

“45Q cannot be the end-all be-all for deploying the technology,” said Stolark, adding that the credit is the most bankable tool that a project developer can take to an investor right now.

Projects moving ahead are those with more concentrated streams of CO2 — like with ethanol facilities — or those that have to transport CO2 a shorter distance, Stolark said. The capture process typically is cheaper with concentrated streams of CO2.

That raises the question of whether the value of $85 per metric ton — for storage in geologic formations — is enough for sectors like steel, cement and the power sector, where costs are higher given the diluteness of the CO2.

“How well does the current value of $85 work for some of these hard-to-abate sources?’” Thompson (John Thompson, technology and markets director at the Clean Air Task Force) said.

He said that the current value works well for industries like hydrogen and ethanol, but “probably we are going to need to do something more — maybe sector specific — on cement, sector specific on steel, maybe it’s fixing some of the inflation adjustment on 45Q.”

At some point, Congress will need to extend the commence construction deadline and increase the value of 45Q, McConnell said.

He said he supports more states getting primacy over Class VI wells, rather than hiring more people to process those applications at EPA. About a dozen states are well-suited geologically to do carbon capture, he said.

Stolark at the Carbon Capture Coalition said 45Q isn’t indexed for inflation until 2027, “and so, we’re already seeing erosion of the value of the credit.”

The issue isn’t unique to carbon management technologies, she said, but given the inflationary environment when the Inflation Reduction Act passed in 2022, it’s important to note how much project costs have gone up over time.

The coalition is advocating for indexing the credit for inflation and using 2022 as the base year.

There’s also a push for the CCU Parity Act, which was introduced in Congress last year and would boost levels for carbon reuse in low- and zero-carbon products and making those equal to levels for geologic storage, Stolark said. READ MORE

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Excerpt from Bloomberg: Uncertainty surrounds carbon capture tax credit rules; Companies say tweak to allow shared pipelines

Major players in the carbon capture industry are asking the IRS to tweak rules for a tax credit meant to jump-start the field, where growth has slowed amid regulatory uncertainty and permitting delays.

Exxon Mobil Corp. and Honeywell International Inc. are among companies that signed a letter to Department of Treasury seeking clarification of how carbon is measured in the rules for the 45Q carbon oxide sequestration tax credit, expanded through the 2022 tax-and-climate law.

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