New Federal Budget Puts Price on Carbon

by Joshua D. Rhodes (University of Texas at Austin Energy Institute) Expanded Carbon Credit Could Spur New Coal Power Investment -- The Furthering carbon capture, Utilization, Technology, Underground storage, and Reduced Emissions (FUTURE) Act, part of the recently enacted Bipartisan Budget Act of 2018, extended and expanded the 2008 tax credits for capturing CO₂. The credits can be used for either sequestering the CO₂in geological formations, or selling it for enhanced oil recovery (EOR). If a firm decides to sequester the CO₂, they receive a $50/metric ton (MT) credit and a $35/MT credit if they sell it for EOR.

For a power plant or chemical facility to claim these credits, they must remove 500,000 MT of CO₂that otherwise would have been released into the atmosphere. For firms looking to either pull CO₂directly from the air, or make a product with that CO_2,the total CO₂ threshold is lower and the credit can be higher. To be eligible, projects must start construction within the next seven years; there is a 12-year window to claim the credits, but no limit to the amount of CO₂ credits that can claimed.

The 45Q tax credits for CO₂ act like the production tax credit (PTC) for wind, but instead provide a credit for the capturing and handling of the energy byproduct, not the energy itself. Nonetheless, the credit will have the same effect on natural gas and coal power plants as the PTC has for wind, and might make new some new gas and coal plants economic.

Coal produces so much CO₂ per MWh generated that if it is able to either sell 90% of it for EOR or sequester it underground, coal plant owners might be able to bid negative into wholesale markets for the first 12 years of CCS operation. This could represent a paradigm shift for new coal plants (and any that are able to retrofit to capture carbon), which could in turn trigger a construction boom. Having a negative marginal cost would usher coal+CCS plants to the front of the bid stack and could vastly increase the amount of time that they operate.

The effect on natural gas plants would be similar. A NGCC+CCS plant that is able to sell CO₂ at an average of at least $15/MT (possibly lower) over its lifetime could have a lower long-term cost than a conventional non-CCS NGCC plant. Again, a higher CO₂ price received makes the economics better.

For all intents and purposes, the 45Q credit acts as a carbon tax, but what makes it different is that it does not provide an incentive to generate less CO₂, as a “traditional” carbon tax would. On the other hand, the credits are only available for a limited amount of time and, if the technology can be made to work, could significantly reduce the carbon intensity of our electricity generation, which might serve as a hedge against any future traditional carbon tax. READ MORE

Excerpt from Office of Heidi Heitkamp: (supported by) Ethanol/Agriculture/Commodities : Archer Daniels Midland, EBR Development LLC, National Farmers Union, White Energy, Algae Biomass Organization (ABO) READ MORE

Excerpt from Algae Biomass Organization: In a historic victory for algae and other microbial technologies, Congress late last night approved a two-year budget agreement that establishes a $35 per ton tax incentive for carbon captured and recycled from power plants or industrial facilities using algae or other biologically-based carbon capture and use (CCU) systems.

The bill adds algae and a number of other CCU approaches to the existing section 45Q Carbon Capture and Storage (CCS) tax credit, which was previously available only to geologic storage and enhanced oil recovery (EOR) projects. It also substantially increases the credit rate from the previous $10 a ton to $35 a ton, extends the credit for up to 12 years, and expands the universe of eligible CO2 sources to include industrial and air capture facilities in addition to fossil power plants.

This historic outcome is the result of tireless work by ABO and its supporters in Congress to put algae on a level playing field with CCS and EOR when it comes to carbon capture policy, and to grow federal policy support for the full spectrum of CCU approaches.

A huge thanks to Senators Sheldon Whitehouse (D-RI), Heidi Heitkamp (D-N.D.), Shelley Moore Capito (R-W.Va.) and John Barrasso (R-Wyo.) for leading the charge; to the Congressional Algae Caucus for its support in the House, and to the many members of the Algae Nation who participated in this historic campaign. READ MORE

Excerpt from Politico's Morning Energy: The Senate Environment and Public Works Committee holds a hearing on S. 2602 (115), (April 11, 2018) the "Utilizing Significant Emissions with Innovative Technologies (USE IT) Act." The bill would support carbon utilization and direct air capture research, as well as support for collaboration in the construction and development of carbon capture, utilization, and sequestration facilities and carbon dioxide pipelines. It is sponsored by Chairman John Barrasso, Whitehouse, Shelley Moore Capito and Heidi Heitkamp. ...

FIRST IN THE NATION: North Dakota is now the first state in the nation to have the authority to permit underground carbon sequestration projects under the federal Safe Drinking Water Act, EPA said Tuesday. Pro's Annie Snider reports the newly granted authority would allow the state's Class VI Underground Injection Control program to approve wells that are used for long-term storage of carbon dioxide from coal plants and other industrial sources. Read more. READ MORE