US Carbon Capture Tax Credits to Persist No Matter Who Wins Elections: Experts

by Markham Watson (S&P Global) Government-funded, industry-led program; Large projects move forward; challenges remain -- US tax credits for carbon capture and storage and carbon capture, utilization and sequestration will likely continue no matter what political party wins the 2024 presidential and congressional elections because the program has supporters in both, CSS and CCUS experts said July 24.

While several aspects of the US Inflation Reduction Act have been targeted for reduction or elimination by the Republican Party, the 45Q tax credit for CCUS projects has not, Keith Martin, co-head of projects at the Norton Rose Fulbright law firm, said during the second day of Infocast's CCS/Decarbonization conference in Houston.

Of the Inflation Reduction Act's main Republican targets if they sweep the election, support for electric vehicles had been what Martin expected to be the top choice for elimination, for example.

"On Section 45Q tax credits, I don't see those on anybody's repeal list," Martin said. "Those were increased and made easier to claim at [US Senator] Manchin's request to help the transition for states like West Virginia from coal to cleaner energy. If, despite expectations, 45Q credits end up being pared back, to help pay for the 2017 tax cut extension, keep in mind that whenever Congress pulled away incentives, it has always grandfathered people who have made some investments based on the existing incentives."

The 45Q tax credit is $85/mt of carbon dioxide permanently stored in a geological formation or $60/mt for CO2 used in other useful products (for example, chemicals) or used for enhanced oil or natural gas recovery, in which it is permanently stored.

"I think this is the rare piece of the puzzle that is, if not bipartisan, at least nonpartisan," Noah Deich, US Department of Energy senior advisor for the Office of Fossil Energy and Carbon Management, said during a keynote address.

"Everybody is trying to shove the risk of a project off to somebody else," Peltier (Justin Peltier, Kinder Morgan) said. "The Gulf Coast has a lot of projects in the area, but we don't really have a lot of underutilized infrastructure."

The lowest risk and best returns currently involve ethanol and natural gas processing, which "make some sense right now," Tiller (Alex Tiller, CEO of Denver-based Carbonvert) said. "The next batch," which includes brownfield sites previously developed for another industry, are among "the hard ones," Tiller said. In contrast, undeveloped greenfield sites are easier to incorporate CCS/CCUS from the start.

The lowest risk and best returns currently involve ethanol- and natural gas-processing greenfield sites, which are easier to incorporate CCS/CCUS from the start, Tiller said. READ MORE

Excerpt from S&P Global: Carbon capture, storage and utilization projects in North America face a degree of uncertainty due to potential regulatory changes, election outcomes, and the pathway for cost reductions, among other factors, S&P Global Commodities Insights analysts said Oct. 30 (2024).

The US and Alberta are rated as being "particularly strong" in CCUS regulation, Moira Hollywood, principal research analyst with Commodity Insights, said during a webinar titled "North America CCUS Strategy: Drivers, Issues, and Challenges."

While the US does not have framework regulation in place for the carbon capture sector, it does have various pieces of legislation that have been amended to cover most areas, according to Hollywood's presentation.

In the US, the regulatory bodies that manage oil and natural gas development are largely in charge of regulating carbon capture. These are the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement for offshore projects and the Bureau of Land Management onshore with the Environmental Protection Agency issuing permits for injection wells.

There is clarity around liability and financial security. Fiscal incentives in the US come in the form of tax credits known as 45Q and Alberta has the Carbon Pricing and Emissions Trading System.

Regarding pipeline transport of carbon dioxide, one ongoing regulatory issue involves pipelines that cross multiple states or cross states as well as federal territory, which can cause permitting questions that have delayed some projects, Hollywood said. The Pipeline and Hazardous Safety Administration said in 2022 that it would strengthen its CO2 pipeline safety rules and an update on that process is expected soon, she said.

Licensing carbon capture projects is still largely ad hoc in the US and "a more formal approach would likely be welcomed," she said.

Potential US election impacts

Bipartisan appeal for carbon capture and a possible split Congress serve to shield 45Q tax credits, Jared Jeffery, senior research analyst, said. READ MORE