Recent and proposed policy changes have created some uncertainty regarding the status of carbon capture, utilization, and storage (CCUS) and, more broadly, carbon dioxide removal (CDR) projects across the country.
The 2022 Inflation Reduction Act (IRA) and 2021 Bipartisan Infrastructure Law (BIL) allocated billions of dollars to advance climate-related projects, including incentives related to CCUS. The IRA earmarked $500 billion in part for CCUS projects, including the 45Q tax credit specifically aimed at accelerating CCUS technologies such as direct air capture (DAC), carbon dioxide (CO2) injection projects at point sources permanently sequestering CO2, and projects using CO2 for enhanced oil recovery (EOR). But with recent changes, it’s uncertain what will happen with these incentives and how other aspects of CCUS projects may change.
Potential CCUS Funding Changes
The IRA’s 45Q tax credit allows $180/ton of CO2 sequestered for DAC and $85/ton of CO2 sequestered for permanent storage captured from a point source (ethanol plant, power plant, pulp and paper plant, refinery, etc.). Many oil and gas operators are invested in CCUS research and projects and, therefore, have supported the tax credit.
An executive order issued in January requires agencies to pause the distribution of funds related to the IRA and the 2021 Infrastructure Investment and Jobs Act (IIJA). It’s unclear what specific funding in these laws could be withdrawn and if these actions would impact funding for CCUS projects.
Agency Changes that May Impact CCUS Projects
While the fate of the IRA, BIL, and IIJA is unclear, recent changes have frozen some functionality of administrative agencies that play a part in CCUS projects, including the US Environmental Protection Agency (EPA), which reviews Class VI permits. So far, it appears that the EPA is still reviewing Class VI permits. Additionally, recent changes to the US Department of Energy (DOE) could also affect CCUS projects, as much of the funding for such projects is issued by DOE through programs like CarbonSAFE.
News reports also indicate that there is a push to limit federal influence and give primacy to states for Class VI administration. This could speed up the Class VI permit application approval process if states are given authority to administer Class VI permits.
Potential New Legislation for CCUS
The US Senate has introduced legislation—the Carbon Dioxide Removal Investment Act—that proposes a new tax credit worth $250/ton of CO2 removed and permanently sequestered and $110/ton removed from a point source. The measure would be technology neutral, meaning it does not specify what method must be used to qualify for the tax credit. The tax credit, which would be called 45BB, would expand available funding under the IRA. Currently, the measure has been read twice and referred to the Committee on Finance.
In addition, the US Senate introduced another piece of legislation titled the Enhanced Energy Recovery Act which seeks to set the tax credit for CO2 used for EOR at $85/ton (currently at $60/ton), which is on par with the value previously applied to permanent sequestration. Currently, the measure has been read twice and referred to the Committee on Finance.
What’s Next?
The CDR/CCUS industry has enjoyed substantial federal support in the past, and that may continue in the future. Overall, it’s difficult to predict exactly how CCUS projects will be impacted by recent changes. We will keep you updated as changes regarding CCUS projects are finalized.
Need help with the Class VI permit application process or navigating a Class VI project? Trihydro’s experienced CCUS team can help.