The state of play with US CCS: Q&A [Gas in Transition]
Where does the US project pipeline stand right now, versus where it needs to be? Is CCS running short of time to fulfil its necessary role in the energy transition?
Around the world today, there are nearly 400 facilities in various stages of development, with more than half of those projects in construction or advanced phases of development with a combined capture capacity estimated at nearly 200mn tonnes/year. Today, in the US, there are 14 commercial-scale facilities with the capacity to capture and store approximately 21.4mn t/yr of CO2, representing nearly half of the global deployment of the technology to date. This wave of projects signals that increased federal policy support for carbon management technologies will translate into real-world projects. As these technologies deploy more rapidly, this will bring costs down through innovation and learning, much like what has been accomplished through deployment-focused federal policies for wind, solar, and other low and zero-carbon technologies.
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However, despite impressive advances in the carbon management sectors over a short period, the current pace of development is not on track to meet economy-wide decarbonisation, with carbon management needing to capture and store at 1.6 gigatonnes (bn t) of CO2 globally/yr by 2030 and subsequently increasing to 7.6 Gt/yr by midcentury. These deployment levels will require additional policy, regulatory, and legal frameworks at the federal and state levels and improved coordination between project proponents, local communities, government, and stakeholders. While the remarkable progress achieved with the passage of legislation in the last Congress is an important start, we must continue building on this momentum to meet net zero emissions by midcentury to enable climate targets.
To what extent have the IRA/Bipartisan Infrastructure Bill shored up support under the 45Q tax credit? How much further does the US need to go in closing the gap between support and project development costs.
45Q tax credit enhancements enacted as part of the Inflation Reduction Act (IRA), coupled with significant investments in the full suite of carbon management technologies enacted during the 117th Congress, represent the single largest federal investment in the development and deployment of carbon management technologies. It was not until the groundbreaking investments in carbon management, included as part of the 2021 Bipartisan Infrastructure Law and the monumental enhancements to the 45Q tax credit enacted as part of the IRA of 2022, that we now have a comprehensive portfolio of complementary policies to bolster widespread deployment of carbon capture, removal, utilisation, transport and storage technologies in crucial sectors including heavy industry, power, and direct air capture.
Together, these policies provide a strong market signal to begin deploying the full suite of carbon management technologies to address pollution across sectors. Taken together, the investments made in these monumental laws, if implemented properly, put the nation on track to deliver a 13-fold scale-up of carbon management capacity by 2035, accounting for an estimated between 210 and 250mn t of annual emissions reductions by that same time. The Coalition recognises that there is a once-in-a- generation opportunity provided by the current portfolio of available policies – and that the industry must respond and accept the challenge before them to responsibly deploy these technologies as fast as possible.
However, there are still some policy measures that are necessary to ensure that carbon management can scale to meet midcentury climate goals and bridge gaps in current levels of policy support. They include the following small-scale tweaks to 45Q.
Inflation adjustment for 45Q
In 2022, the United States was impacted by some of the highest inflation rates in four decades, with the Consumer Price Index peaking in June 2022 at a 12-month change of 9.1%. The largest increases were seen in energy, ranging from 13.7 to 70.4%. As a result, the value proposition for carbon management technologies, even with higher 45Q credit levels, changed rapidly over a short period of time. Project developers and equipment providers have identified inflation as a significant deployment barrier, with some developers reporting that in certain cases, equipment costs have increased more than 50% since 2021.
Unlike other low- and zero-emissions technology tax credits recently reformed or created under the 117th Congress, the 45Q tax credit value is not adjusted for inflation until 2027. As determined by the Great Plains Institute, a substantial portion of the value increase realised in recent enhancements to the tax credit has been eroded due to significant inflation in both capital goods costs and energy price increases. To prevent further reduction of the credit value, 45Q should be adjusted for inflation beginning immediately, using 2022 as the base year for the dollar figure.
Parity for Carbon Reuse and Geologic Storage Credit Levels
Under the current Section 45Q statute, there is a $25/t disparity between those projects that reuse carbon emissions versus those that securely and permanently store the captured carbon. This disparity effectively disincentivises the development and deployment of relatively nascent carbon reuse technologies, essentially acting similarly to a new tax on such operations. This disparity rises to $50/t in relation to direct air capture projects.
Reuse applications for carbon emissions from industrial and power facilities will help to provide incentives to install carbon capture in a number of cases, including; early market incentives for capturing carbon emissions while transport and storage infrastructure scales, for those facilities whose sources of emissions that are too small to be economically captured and transported, or for those that are too far removed from appropriate storage sites. Further, re-used carbon can create a circular carbon economy where carbon emissions are recycled into essential fuels, chemicals and products even in a fully decarbonised economy.
The Coalition-endorsed CCU Parity Act would support carbon utilisation technologies that reuse captured carbon in the manufacturing of low- and zero-carbon products including fuels, chemicals, building products, and other products of economic value that are not yet cost competitive with other incumbent, well-established products and processes, or face other barriers to market entry by providing the following credit levels — in line with those provided for geologic sequestration — under the 45Q tax credit: $85/t for the reuse of captured emissions from industrial and power generation facilities; and $180/t for the reuse of captured emissions from direct air capture projects.
Passing the CCU Parity Act would help ensure that carbon utilisation technologies can fulfill their role as an important complement to large-scale carbon storage. Federal support for the carbon utilisation sector will boost deployment of carbon capture, while creating sustainable, circular supply chains that support local jobs and regional economies.
CCS infrastructure in the US can face an uphill battle with regulatory challenges. To what extent is this impeding the sector’s development and is there any cause for optimism that things will get easier?
Efficient and effective permitting timelines along with transparency of the federal environmental review process will be critical in scaling the carbon management industry at the pace necessary to keep up with anticipated project deployment incentivised by recent policy successes. We are focused on ensuring these technologies have the right regulatory environment to scale, and to that end, we’re continuing the conversation with our incredibly diverse membership to identify potential areas of consensus in this broader conversation that’s unfolding.
Currently, interstate CO2 pipelines are sited on a state-by-state basis while, in contrast, there is federal siting authority for interstate natural gas pipelines under the Natural Gas Act. There is active discussion in the context of permitting reform over federal siting authority for interstate transmission lines and interstate hydrogen pipelines. Absent from the debate, however, has been providing similar siting authority for CO2 pipelines.
Establishing a pathway for federal siting authority for interstate CO2 pipelines to provide similar parity for all linear infrastructure types, where appropriate, that face similar siting challenges is a priority to enable recent federal historic investments dedicated to carbon management infrastructure to enable efficient and responsible buildout of the necessary CO2 pipeline network. Such parity would also enable better coordination planning and siting across federal agencies to lower impacts for wildlife and local communities. However, lines that are well served by the current state by state regulatory siting authority should be allowed to continue with that process.
The EPA Underground Injection Control Class VI injection wells programme is an important piece of the regulatory puzzle in scaling up carbon management projects across the nation. Saline storage of CO2 is essential to successfully deploying carbon management technologies at the rate and scale necessary to meet US and global climate goals. To date, the EPA has permitted four Class VI wells, with draft permits for four additional wells pending. With the influx of project announcements over the last several years, as of May 2024, there are now 136 individual well permit applications for a total of 46 projects that are currently pending at EPA.
Domestically, the ingredients for success are coming together to address this backlog — geologic storage potential, available technologies ready to deploy, and a strong foundation of supportive federal policies to ensure that carbon management projects can scale to help reach midcentury net-zero climate goals. However, to attain geologic storage on the needed scale, policymakers must provide the resources, staffing, technology, and training to state and federal regulatory authorities necessary for deployment and ensure that proper regulations are in place to allow storage to move forward at the scale necessary to mitigate the worst impacts of climate change.
To that end, for the past several years, the Coalition has prioritised and successfully advocated for increased resources for the EPA’s Underground Injection Control program, which includes oversight of the Class VI well program. These resources are critical for EPA to adequately meet the anticipated increase in Class VI well permit applications in response to the significant restructuring of 45Q in the 2018 FUTURE Act, and most recently through further enhancements to the 45Q programme in the Inflation Reduction Act.
Timely and effective Class VI permitting is one important component to scaling the carbon management industry at the pace required by midcentury climate targets. Regardless, we do know that standing up and staffing a regulatory program of this nature and complexity takes time. The Bipartisan Infrastructure Law has now been in place for nearly 18 months, and we look forward to continuing to work with EPA to ensure that they are fully resourced to adequately and swiftly work with the growing number of project developers who are looking to apply for, and secure, Class VI permits in timeframes that enable successful project development.