The National Enhanced Oil Recovery Initiative (NEORI) listed extension of the Section 45Q Tax Credit for Carbon Dioxide Sequestration as an immediate priority in memorandums to the Democratic and Republican presidential transition teams.
“Our immediate interest is in the capture, utilization, and storage of CO2 and we are actively pursuing legislation to provide more robust federal incentives to stimulate deployment of carbon capture technologies and projects and increase the supply of man-made CO2 for enhanced oil recovery,” the group said in both memos on Nov. 1.
“45Q is capped and offers no certainty that credits will be available to carbon capture projects once operational. This has a significantly negative impact on the economics of new projects,” it continued.
“A stable, long-term incentive is essential because large, capital-intensive [carbon capture and underground storage] projects take longer to develop, permit, finance, and construct than smaller, less capital-intensive wind and solar projects,” the group explained.
Its memos said that the Section 45Q tax credit needs to be reformed in three ways:
• The tax credit’s value must be higher. Given what is known about the cost of carbon capture and the fact that CO2 capture technology remains costly for most industries, Section 45Q’s current $10/ton value needs to grow to $35/ton to help cover the gap between the cost of carbon capture and revenue earned from selling CO2 for use in EOR.
• The eligibility threshold must be lower. The requirement to capture 500,000 tons/year of CO2 renders ineligible most facilities in key industries, such as ethanol and fertilizer production, NEORI said. It also arbitrarily constrains carbon capture technology innovation in coal and natural gas-fired power generation. Reducing the threshold for all facilities to 100,000 tons/year would expand CCUS in more industries in more states and support technology innovation, the group argued.
• The tax credit’s recipient definition must be broadened. Electric cooperatives and many other CCUS project developers cannot fully utilize existing 45Q credits, NEORI said. Changing the entity to claim the credit to the owner of the carbon capture equipment would provide the necessary flexibility to accommodate different business models and investors, it said.
Extending and reforming Section 45Q enjoys broad bipartisan support in Congress, the group noted as it listed Democratic and Republican sponsors and cosponsors of two carbon capture and storage bills during 2016.
It said extending and expanding the Section 45Q tax credit would do the most to accelerate CCUS technology deployment “although private activity bonds (PABs) and master limited partnerships will play a critical role.” But NEORI also outlined other policy moves which would help, including a crude oil price stabilization mechanism and legislation to extent benefits of publicly traded master limited partnerships in the oil and gas industry to carbon capture and renewable energy projects.
In an apparent reference to the broad energy policy legislation being reviewed by a House-Senate conference, the organization said that it directs the US Department of Energy to report on long-term contracts to stabilize crude prices—also referred to as contracts for differences—to mitigate price volatility which deters private investments in carbon capture projects.
Participants in NEORI, which the Center for Climate & Energy Solutions and the Great Plains Institute jointly convened, include Occidental Petroleum Corp. from the oil and gas industry, three of the nation’s top five coal producers, two merchant and cooperative power companies, the largest US ethanol producer (Archer Daniels Midland), the AFL-CIO and six industrial unions, and two national environmental groups (the Clean Air Task Force and Natural Resources Defense Council).
Contact Nick Snow at [email protected].
