Focus on the USA |
IRA aims to give CCUS a boost, but will it take off?
Why the Inflation Reduction Act should provide a much-needed boost for the development of carbon capture, utilisation and storage projects in the USA
Steve Hendrickson president of Ralph E. Davis Associates (RED), an Opportune LLP company, and Bryan Sims content director, Opportune LLP, Houston, TX, USA
While the Inflation Reduction Act contains several incentives for “traditional” forms of renewable energy, such as wind and solar, it also contains more robust incentives and tax credits for producers, developers, and investors seeking to build new CCUS facilities.
The passage of the IRA means that carbon capture technologies are within closer reach for industries whose greenhouse-gas emissions are more costly to capture and sequester. Previously, only those sources whose emissions contained a very high concentration of CO2
, like ethanol
plants, were viable candidates for carbon capture deployment. With the increased credits in the IRA, other industries like steel, cement, refineries, and chemicals may be able to reduce their carbon
emissions using CCUS. Specifically: ● The IRA substantially increases the availability of the federal income tax credits available for domestic CCUS projects (often referred to as
“45Q credits”) to $85/ton for sequestering CO2 produced by industrial activity, up from $50/ton.
● 45Q incentives increase from $35/ton to $60/ ton for utilisation from industrial and power generation carbon capture.
● 45Q incentives increase from $50/ton to $180/ ton for storage in saline geologic formations from direct air capture (DAC).
● 45Q incentives increase from $50/ton to $130/ ton for utilisation from DAC.
● The 45Q credit can be realised for 12 years after the carbon capture equipment is placed in
service and will be inflation-adjusted beginning in 2027 and indexed to base year 2025.
● 45Q’s “commence construction” window is extended seven years to January 1, 2033. This means that projects must begin physical work by then to qualify for the credit.
Another major change in the IRA is the inclusion of a direct payment option for receiving the credit, which will allow the owners of carbon capture equipment to receive their credits as if they were overpayment of taxes. This is significant because under previous legislation the credit could only be taken to the extent it offset current taxes; this limitation would often require the creation of complex “tax equity” financial structures to monetise the credits. While this is an important change, unfortunately, for-profit, tax-paying entities can only use the direct payment option for five years after the carbon capture equipment is placed in service. Tax-exempt entities such as states, municipalities, tribes, and co-operatives can realise the direct payment option for the full 12 years after the carbon capture equipment is placed in service. Another related provision in the IRA is a one-time option to sell future credits to a third party, but there are unresolved questions regarding the implementation of this aspect. Additionally, the IRA broadens the definition of “qualified facilities”, that is, those facilities that are
eligible to claim the credit: ● The capture threshold for credit-eligible power
generation facilities will decrease from 500 000 tons of CO2
emitted per year to 18 750 tons.
● For industrial facilities, it will decrease from 100 000 tons of CO2
● For DAC facilities, it will decrease CO2
amount requirements from 100 000 tons captured per year to 1000 tons per year.
● Power generation facilities seeking to qualify for the credit must meet a capture design capacity requirement of not less than 75% of the CO2
Taken together, these changes are anticipated to significantly increase the number of carbon capture projects that will enter service over the coming years.
How much carbon can be economically captured and stored? The IRA is expected to help the USA reduce overall emissions by about 40% below 2005 levels by 2030, compared with the 24%-40% cuts we’re on track for today. But estimates of the role carbon capture will play in achieving this target vary. A widely-cited analysis of the IRA by consulting outfit Rhodium Group concluded that carbon capture could deliver between 4% and 6% of that progress and more in future years. A separate analysis by Princeton University’s REPEAT Project found that the IRA could result in the sequestration of nearly 1 billion metric tons of CO2 The cost of capturing CO2
by 2030. is strongly influenced
emitted per year to 12 500 tons. capture
from an electricity generating unit that will install capture equipment.
Annual CO2
captured, transported and stored in the USA, with and without the Inflation Reduction Act (million tons per year) Source: Princeton University Zero Lab REPEAT (Rapid Energy Policy Evaluation and Analysis Toolkit) Project (
repeatproject.org)
20 | November/December 2022|
www.modernpowersystems.com
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