Just How Much Money Do CO2 Pipeline Companies Stand to Make From the Inflation Reduction Act?

by Nicholas Kusnetz and Kristoffer Tigue (Inside Climate News) ... By getting more carbon dioxide under contract, the expansion would help Summit’s financial case and, critically, would open up billions of dollars in additional tax credits, without which the project would never be built. If the pipeline is built and operates at full capacity, Summit and its partners could be eligible for as much as $18 billion in federal tax benefits over 12 years. In reality, the pipeline is unlikely to get that full amount, experts say, but it could still reap many billions, potentially enough to cover most or even all of its construction and operating costs.

Given the sustained resistance that Summit has faced, and the project’s high costs—an estimated $8 billion for construction—the generous federal tax credit could help explain why the company is expanding its scope, rather than retreating.

Daniel Cohan, an associate professor of civil and environmental engineering at Rice University, said the scale of Summit’s potential tax benefit is unprecedented and far exceeds what any single wind or solar project would get, for example. But, he said, that might be the point.

“The government is trying to kickstart technologies that have only rarely been used,” Cohan said. “Agree with it or not, the logic of these carbon capture tax credits is to make them especially generous at first with the hope that they can be scaled back as carbon capture becomes more widespread in the future.”

The benefits are particularly large for ethanol plants, which produce a near-pure stream of carbon dioxide and are therefore among the cheapest carbon capture operations.

“If we’re going to meet climate objectives, Summit’s type of project, that’s the scale we’re going to have to build,” said Matt Fry, senior policy manager for carbon management at the Great Plains Institute, a think tank that has convened a coalition of pro-carbon capture industry, unions and environmental groups, including Summit. Fry pointed to modeling by the International Energy Agency and others showing that the world will not be able to electrify all transportation fast enough to meet climate goals and will therefore need low-carbon fuels and carbon capture and storage.

According to Summit, the additional 25 ethanol plants would be able to capture 7.8 million metric tons of CO2 every year, bringing the total amount under contract for the pipeline to more than 16 million metric tons.

Rohan Dighe, a research analyst at the consulting firm Wood Mackenzie, said the tax credit will not likely be enough to make the project profitable, and that Summit is counting on developing markets for low-carbon ethanol. California, Washington and other states already have created markets that pay a premium for lower-carbon fuels. The federal government is trying to launch a market for sustainable aviation fuel—the Inflation Reduction Act enacted several new tax credits with that goal in mind.

Cohan said that while the carbon capture tax credit was a far more expensive way to cut emissions than building renewable energy, he compared it to some of the first incentives for wind and solar enacted decades ago.

“I think it makes sense for a wealthy, advanced country like the United States to be devoting some of its policies to advancing emerging technologies,” Cohan said. “And in this case, carbon capture from ethanol plants is a nascent technology that is one of the most affordable ways to capture carbon from industry.” READ MORE

Excerpt from Associated Press: But making that dream a reality hasn’t been easy, in part because even as farmers would benefit from a huge new market for corn, the plan relies on federal tax credits triggered by capturing carbon dioxide at refineries and then moving the gas hundreds of miles through pipelines that would snake across the Midwest, including beneath farmers’ fields.

Some of those farmers, along with environmentalist and property rights groups, have gone before regulatory authorities in several Midwest states to oppose the lines, and frequently they have succeeded in at least slowing the process. A key decision is expected soon in Iowa.

“This whole thing is private industry -- rich private industry -- getting tax money, strictly tax money to bury this stuff,” said McLean, who opposes a line that would cross his farmland east of Bismarck. “That tax money is coming out of everybody’s pocket, and they’re going to walk away from it, and we’re going to be left with a big poisonous pipe running across the country.”

Supporters have faced such criticism for years as they seek approval of pipelines and tax credits. The credits would mean profits for refineries and help make the cost of the new fuel competitive with traditional jet fuel. But opponents see the pipelines as an expensive and potentially dangerous effort that tramples on property rights and fails to reduce greenhouse gases.

Essential to their efforts is a complicated formula that regulators established to approximate how much each ethanol plant contributes to global warming. Ethanol production already produces less carbon than gasoline production, but the industry must reduce that further to qualify for tax credits that require biofuel have a carbon score at least 50% lower than gasoline.

The Treasury Department recently tweaked that formula, taking into account the role farming practices, like planting cover crops and using no-till techniques, play in reducing carbon production. However, the rules require farmers to take all those steps so it will still likely be hard for ethanol to qualify without either carbon pipelines or a combination of several other expensive measures, like ensuring an ethanol plant is powered by renewable energy or biogas.

That’s why many in the biofuels industry argue that carbon capture pipelines are the best option to obtaining tax credits.

Without the sustainable aviation fuel market, Shaw and others contend corn prices could ultimately collapse in future years as demand from motorists wanes.

Currently, the roughly 200 U.S. ethanol plants have the capacity to produce 18 billion gallons of ethanol annually, though some are idle so the industry produces about 15 billion gallons a year, according to the U.S. Energy Information Administration. Passenger jets now burn about 25 billion gallons a year and that is expected to grow to 35 billion gallons annually by 2050. READ MORE