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22 December 2021

US policymakers pave the way for carbon removal

The Biden administration says carbon capture and removal will be necessary for the US to achieve net-zero emissions by 2050. US policymakers are working to scale up deployment of these technologies.

By Justin Gerdes

Politicians have waited so long to get serious about tackling rising global temperatures that preventing the most dangerous warming will likely require capturing carbon dioxide at source and removing already emitted carbon from the air. In the US, the Biden administration sees a role for the federal government in helping bring to market technologies that can do both at reasonable cost.

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“To reach the President’s ambitious domestic climate goal of net-zero emissions economy-wide by 2050, the United States will likely have to capture, transport, and permanently sequester significant quantities of carbon dioxide (CO2),” write the authors of a report to Congress published by the White House Council on Environmental Quality (CEQ) in June 2021.

“There is growing scientific consensus,” they added “that carbon capture, utilization, and sequestration (CCUS) and carbon dioxide removal (CDR) will likely play an important role in decarbonization efforts globally; action in the United States can drive down technology costs, accelerating CCUS deployment around the world.”

Coal power plant
The Big Bend coal fired power plant is located on Florida’s West Coast, south of Tampa. (Photo by Andrew Lichtenstein/Corbis via Getty Images)

The US has a head start on CCUS and CDR in part because the country’s oil and gas industry has long used CO2 to boost production. Drillers can inject CO2 underground to free oil trapped in geologic formations – a process known as enhanced oil recovery. The 5,200 miles of dedicated CO2 pipelines that crisscross the US delivered 52 million tonnes of CO2 for EOR in 2019.

But current and planned carbon capture and removal activities extend well beyond these oil industry roots. “The United States has more CCUS activities planned and proposed than any other country”, with 45 CCUS facilities in operation or in development, according to CEQ.

The Biden administration wants carbon capture and removal technologies to be capable of operating at the “gigatonne” scale by 2050. One gigatonne of sequestered CO2 would be equivalent to the emissions from all 250 million US light-duty vehicles driven for one year, according to the US Department of Energy (DOE).

The 45Q tax credit

US policymakers are pursuing carbon capture and removal on two tracks. The first comprises technologies that capture CO2 at the source, for example from fossil fuel-burning power plants, factories or other large industrial facilities. The second encompasses technologies that remove CO2 from ambient air.

The US is at the forefront of global efforts to commercialise carbon capture and removal technologies. CCUS projects are operating or under development in 25 countries but the US and Europe alone account for 75% of those projects, according to the International Energy Agency (IEA).

Much of the recent activity around carbon-removing technologies in the US is attributable to the 45Q tax credit, a section of the federal tax code that supports CCUS and CDR deployment. Congress expanded the 45Q tax credit in the Bipartisan Budget Act of 2018. The pending Build Back Better Act, which contains much of President Biden’s climate and jobs agenda, would expand the tax credit even further.

“The expansion of the 45Q tax credit in the United States in 2018 – providing a credit of USD 50 per [metric] tonne [t] of CO2 that is permanently stored – was a major catalyst for new investment plans,” writes Samantha McCulloch, head of the IEA’s CCUS unit.

“More support for CCUS is available today and policies have also evolved from the provision of one-off capital grants to creating durable markets for CCUS,” she says. “The 45Q tax credit in the United States is a prime example.”

Recent action in Congress would provide investors and companies even more long-term federal policy certainty. The Bipartisan Infrastructure Law, signed by President Joe Biden on 15 November 2021, and the Build Back Better Act would together make billions of dollars available for research, development and deployment of carbon capture and removal technologies.

The Bipartisan Infrastructure Law allocated more than $10bn for “carbon capture, direct air capture and industrial emission reduction”. Shortly after the bill became law, the Department of Energy asked industry, developers and other stakeholders to submit information on “deployment-ready carbon reduction and removal technologies” to guide the department’s investment decisions.

45Q and the Build Back Better Act

The Build Back Better Act would extend and expand the 45Q tax credit into the next decade. Projects that begin construction by the end of 2031 would be eligible for tax credits – a six-year extension on the current law. Lower carbon capture requirements – 12,500 tonnes per year (t/yr) for industrial facilities and 18,750t/yr for power plants – would make more projects eligible for the credit. Power plants would have to capture at least 75% of their CO2 emissions.

For carbon capture projects that meet wage and labour requirements, credit amounts would increase from $50/t to $85/t for CO2 locked away in geological storage and from $35/t to $60/t for CO2 used in enhanced oil recovery. The incentive for direct air capture is even more lucrative, up to $180/t for projects that capture and store at least 1,000 metric tonnes of CO2 annually. A direct pay provision would make it easier for project owners to take advantage of the tax credits.

Passage of the Build Back Better Act is far from guaranteed. The bill passed out of the House of Representatives on 19 November with only Democratic votes and awaits action in the 50-50 Senate, where Democrats control the chamber with Vice President Kamala Harris’s tie-breaking vote. A Senate vote on the massive spending bill was headed for an end-of-year vote before West Virginia Senator Joe Manchin, the Democrats’ primary holdout, said on 19 December he could not support the House version of the bill. After Manchin’s announcement, the White House and Democratic leadership in Congress said negotiations over a revised version of the bill will continue in the new year.

Some environmental advocates are unhappy with the more generous 45Q tax credit. The Sierra Club calls the Build Back Better Act’s proposed $85/t, 12-year CCS tax credit “a lucrative and absurd handout to the fossil fuel industry”.

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If economics were the only consideration, that argument would prevail. It is far cheaper to build new solar or wind power plants than to retrofit existing fossil fuel power plants with equipment to capture and store CO2. But realpolitik is at work, too. Senate Democrats cannot pass the Build Back Better Act without Joe Manchin’s vote; and Manchin will not vote for the bill without provisions to preserve his state’s coal and natural gas power plants and jobs.

Manchin and a handful of other Senate Democrats are also working to lower or eliminate the 75% CO2 capture requirement for power plants included in the House version of the Build Back Better Act, arguing it would limit the number of plants that can claim the credit. The House version of the bill removed the carbon capture threshold entirely for non-power-generating industrial facilities. Many environmental advocates, as well as climate-focused House Democrats, meanwhile, are pushing for the 75% requirement for power plants to stay, lest the credit become an expensive lifeline for ageing, uneconomic plants that would otherwise shutter.

“There is no reason why subsidies for CCS in the power sector should be made more generous and less stringent. Congress should not provide an unlimited subsidy to the fossil fuel industry that would entrench coal and gas power plants,” several environmental NGOs wrote in a 9 December letter to Senator Ron Wyden, chair of the Senate’s Finance Committee. The next week, Democrats in the House introduced legislation that would repeal 45Q tax credits for CO2 used for enhanced oil recovery.

Carbon capture and removal research at DOE

Carbon capture and removal enjoys rare bipartisan support in Washington, D.C. Republicans support it because they believe it will enable the US to use the country’s vast fossil fuel reserves indefinitely; Democrats believe carbon removal will likely be necessary to prevent even more dangerous planetary warming. Not surprisingly, Congress has backed significant increases in funding for carbon capture and removal research in recent years, including in the Energy Act of 2020.

The hub for R&D into carbon capture and removal technologies is the DOE’s recently renamed Office of Fossil Energy and Carbon Management. The Biden administration has begun to roll out CCUS and CDR initiatives. In early November 2021, the DOE announced the “Carbon Negative Shot”, the third target launched under its new Energy Earthshots Initiative, a programme intended to accelerate breakthroughs in solutions to reach net zero by 2050. The new target aims to scale up technologies that can remove CO2 from the atmosphere and “durably store it” for less than $100/t. Congress approved a $100m prize competition for direct air capture in the Energy Act of 2020.

“CDR technology still requires significant investments in research and development to create a cost-effective and economically viable technology that can be deployed at scale and in time to meet the urgent needs of the climate crisis,” said the department in the initiative's announcement.

Also in November, the DOE provided more than $40m to the Advanced Research Projects Agency-Energy to support the development of technologies that turn building materials into carbon sinks. In early December, Jigar Shah, director of the DOE’s Loan Programs Office, said companies have submitted applications for $8bn in loans for CCS projects. DOE launched a new Office of Clean Energy Demonstrations on 21 December, backed by $20bn from the Bipartisan Infrastructure Law, to fund demonstration projects in sectors such as hydrogen, energy storage and carbon capture.

The recent boost in federal support for carbon removal comes amidst notable setbacks for the industry. At Petra Nova, where a CCS project was added to an existing coal-fired power plant located near Houston, Texas, the CCS system was mothballed in May 2020, with the operator, NRG, blaming “the effects of the worldwide economic downturn, including the demand for and the price of oil”. The facility had sent captured CO2 via an 80-mile pipeline to an oil field to boost production. Mississippi Power’s Kemper project, a power plant intended to capture and store CO2 emissions from gasified lignite coal but which ended up burning natural gas without CCS, was imploded in October 2021. The industry's growing pains were highlighted in a new US Government Accountability Office report that urged Congress to "consider implementing a mechanism for greater oversight and accountability of DOE CCS demonstration project funding".

Despite the setbacks, the industry appears determined to push ahead. The availability of the 45Q tax credit, and its potential expansion under the Build Back Better Act, make it easier for project developers to take a chance on technology that is still unproven at scale. Last month, the Iowa Fertilizer Company signed an agreement with Navigator CO2 Ventures to transport and store up to 1.13 million tonnes of CO2 annually via the proposed Heartland Greenway, a 1,300-mile pipeline system that would send CO2 from Midwestern industrial facilities to a site in Illinois for underground storage. The project could be online by late 2024.

“We are monitoring the ongoing discussions in Congress around enhancements to the 45Q program to support the project economics and potentially open the opportunity to widen the scope of this project to capture more CO2,” said Ahmed El-Hoshy, CEO of OCI N.V., owner of the Iowa Fertilizer Company, last month.

Free Whitepaper
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What's the outlook for low carbon hydrogen?

The development of the hydrogen economy will support the fulfilment of decarbonization objectives, particularly for those sectors that are difficult to electrify, such as heavy industry, long-distance trucking, shipping, and aviation. GlobalData's Hydrogen Service tracks investment in the hydrogen sector, and provides you with:
  • A complete dataset of the low-carbon hydrogen projects across the globe.
  • Latest news across the hydrogen value chain.
  • Quarterly market analysis, with details of new projects, company activity and financial deals.
For more information, and to download sample pages from our quarterly market analysis, including a summary of the active and upcoming low-carbon hydrogen capacity by region, please enter your details.
by GlobalData
Enter your details here to receive your free Whitepaper.

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