Among the energy credits tucked inside the budget deal eked out in early February lies a controversial measure: carbon capture and sequestration (CCS) credits designed to push the technology from the clean energy margins toward the mainstream.
For years the technology has divided environmentalists and many working in the energy industry, even as some researchers argued for its essentiality in a decarbonized world. Now, modifications to an existing credit called Section 45Q offer more money per ton of carbon dioxide captured and remove a cap on how much plants can store.
“These changes to the tax code and the enhancements of the 45Q tax credit will absolutely make the difference between a whole bunch of projects being financed and a whole bunch of projects not making it,” said Julio Friedmann, formerly of the Department of Energy’s Office of Fossil Energy, and now a distinguished associate at the Energy Futures Initiative and CEO of Carbon Wrangler, LLC.
The changes extend tax credits to carbon capture projects constructed over the next six years. Projects formerly received $10 for each ton of carbon captured and used for enhanced oil recovery and $20 for each ton captured and put “in secure geological storage” underground. The new credit bumps those sums to $35 and $50, respectively. It also eliminates a pre-existing annual volumetric cap of 75 million tons of carbon dioxide.
Taken together those adjustments reduce risk for developers and make CCS projects more viable, according to Jesse Jenkins, a researcher at the Massachusetts Institute of Technology Energy Initiative.
Jenkins said carbon capture has been stuck in a negative feedback loop: high cost barriers to entry prevented companies from pushing forward on innovation, which in turn prevented the technology from getting cheaper.
“The biggest obstacle is that carbon is a free pollutant. We don’t charge for carbon dioxide pollution, so there’s no direct financial incentive for a power plant to want to capture its CO2,” Jenkins said. “Without a clear financial upside, there’s very little reason for companies to pursue that risky technology development.”
Credit where credit is due
That’s where tax credits come in. Supporters of carbon capture say a little boost should help nudge the technology to where it can be profitable on its own.
“The reality of any technology development, particularly in the energy space, is it's very difficult to move technologies into the marketplace without some sort of push,” said Walker Dimmig, spokesperson for NET Power, a company now testing carbon capture technology at its natural gas plant in Texas. “The energy marketplace is incredibly competitive.”
That’s why supporters of carbon capture argue the technology deserves the same type of support that helped now-mainstream and cost-competitive technologies like wind and solar.
Based on work at DOE’s Office of Fossil Energy and National Energy Technology Lab, the technology for carbon capture projects has existed in the U.S. for years. But according to Friedmann -- aside from some money in the 2009 stimulus package -- the funding did not.
In recent decades, carbon capture watchers initially expected prices to fall and technology to improve. Instead, wind and solar ran away with significant price declines while CCS advancement largely idled.
Matt Lucas, associate director of carbon capture, utilization and storage technology at the Center for Carbon Removal, called the updated credits a “pull” mechanism directly analogous to the Investment Tax Credit and the Production Tax Credit. In that sense, he said, “this is pretty revolutionary.”
Others see it as a form of the derided activity known as “picking winners.” Daniel Cohan, a professor of environmental engineering at Rice University, said a carbon tax would be more appropriate to let all technologies compete.
“One concern that I have with these tax credits is that they specifically incentivize one option to cleaner energy: carbon capture with fossil fuels,” said Cohan. “That gives it a competitive advantage against renewable energy options that might cut emissions even [more].”
Many advocates, though, see the credits as a leveling of the playing field. Jenkins called it a “technology-neutral market pull” to bring carbon capture projects to the fore.
Whether it yields the same results as other clean energy tax credits, Cohan said, will decide “whether carbon capture is ready for primetime.”
Proponents suspect it is.
“I would consider this program a success if after six years we have one or more turnkey carbon capture solutions that are relevant in industry or power generation,” said Jenkins. “I think that’s likely to be the case, given our experience with tax credits in other industries.”
Big flops and game-changers
Even with past economic headwinds, several power generating plants have stepped into the carbon capture market as early entrants, with mixed results.
Last year Mississippi and Southern Company shut down the carbon capture portion of the Kemper Plant, an integrated gasification combined cycle project that was billions of dollars over budget and years behind schedule. The project was designed to capture carbon dioxide emissions from lignite coal and received millions of dollars in federal government subsidies. The plant now burns just natural gas.
“That was a big flop that’s really set the industry back,” said Cohan.
NRG Energy and JX Nippon Oil & Gas Exploration completed their post-combustion capture Petra Nova plant with more success. It opened in 2016, on time and on budget. That project tacked carbon capture onto an existing coal power plant outside Houston. Geography gave Petra Nova an economic advantage: Captured carbon brings in additional revenue by being utilized in enhanced oil recovery at a nearby oil field operated by Hilcorp Energy Company.
The NET Power plant in Texas, a joint venture of Exelon Corporation, CB&I and 8 Rivers Capital, uses yet another type of technology. Dimmig said carbon capture is “inherent to the plant’s design,” which is still in early testing. It uses carbon dioxide produced in combustion to drive turbines at the plant rather than steam.
Though Dimmig said the updates to 45Q will likely help the plant, he said NET Power’s goal is to create a technology that was economic with or without support.
“We never wanted to be developing a technology where policy is an absolute requirement,” he said.
So far, the “game-changer” system looks to be cheap and efficient. If the company can perfect it, Dimmig said 45Q will help with financial support in building out future commercial-scale plants.
Abroad, Jenkins said 45Q could also make an impact on power generation. While adding carbon capture to older U.S. coal plants may remain relatively uneconomic, countries like South Africa, China and Indonesia have a fleet of young, critical coal plants unlikely to retire in the near term.
If U.S. companies can capitalize on carbon capture innovation, Friedmann said it may “create an export technology” as countries look to reduce emissions while maintaining those plants.
Building a carbon budget
While Friedmann said he expects some natural-gas plants and a few coal-fired power plants to get enough of an economic edge from the credits, they are likely to pencil out more positively for industrial applications at first. That will benefit industries like steel, cement and ammonia manufacturing, which have lower costs of capture than do power generators. They also can’t be electrified in the same way that power generation can, and their carbon emissions stem from chemical reactions rather than burning fuel.
Industry also makes up a 21 percent chunk of national greenhouse gas emissions, which the U.S. will have to address to curtail climate change.
“There’s a lot more to the carbon budget than electricity and cars,” said Cohan. “For a lot of those industrial applications, you’ll need to capture carbon.”
On the power generation side, Jenkins estimated that the credits may not be enough to drive cost-competitiveness. But a better economic outlook may also allow plants to more readily compete with other clean, dispatchable energy sources like nuclear and hydropower.
“Wind and solar are increasingly very low-cost sources of energy in a large portion of the country,” said Jenkins. “But price alone is not the only thing to look at. A wind or solar plant plays a very different role in our power system than a coal or gas plant.”
Ultimately, advocates -- and many researchers -- view carbon capture as a vital tool in cutting down on the carbon budget.
As we near mid-century, Bob Perciasepe, president of the Center for Climate and Energy Solutions, said it’s become clearer that fossil fuels and carbon emissions are sticking around. For that reason, he believes that developing carbon capture projects will offer a safety net in coming decades.
“You have to see this as hedging your bets,” said Perciasepe. “A lot of us want to make sure that it’s going to be there when the time comes.”
The Center for Climate and Energy Solutions is part of the National Enhanced Oil Recovery Initiative, a collection of groups that works to develop and advance carbon capture legislation and its application in oil recovery. The Natural Resources Defense Council*, the Clean Air Task Force, the United Mine Workers of America and Peabody Energy are all members.
“An antiquated view of CCS”
Despite that diverse coalition, carbon capture will likely remain controversial in some environmental circles where concerns persist about the support it lends to continued use of fossil fuels.
For carbon capture facilities near oilfields, the possibility of selling carbon dioxide for use in enhanced oil recovery -- even at a lower credit rate -- will likely yield higher returns than other types of carbon storage, making it an enticing option.
Environmental organizations such as Greenpeace, Earthjustice, and Friends of the Earth continue to question the utility of CCS. Greenpeace has called it “unproven, risky and expensive.” In a blog post after the passage of the budget, the Natural Resources Defense Council said carbon capture can act as a “useful tool,” but also expressed concerns that the legislation weakened standards for carbon capture facilities.
But those involved with carbon capture see the technology as a climate necessity.
“Some folks, they either have an antiquated view of CCS, they have another agenda where they’re more concerned with the 'leave it in the ground' movement, or they haven’t looked hard enough at the studies that have tried to identify how we’re going to reach climate targets,” said Dimmig. “Those folks remain kind of outside the CCS support network, but I think the majority of the climate community, and the energy community, has come around.”
In the absence of clear, national policy on climate change -- aside from the current administration’s tendency to ignore it or call it a hoax -- CCS advocates said carbon capture gives power to the private sector until the time is right.
“Having the ability to get these technologies more and more cost-effective -- solar panels, wind generators or carbon capture technologies -- the more we can get them ready and cost-effective, the better off we’ll be later when we have an overarching national policy,” said Perciasepe.
*UPDATE: After Greentech Media published this story the Natural Resources Defense Council announced it would exit the National Enhanced Oil Recovery Initiative, which Axios reported is rebranding to the Carbon Capture Coalition.
"NRDC has long supported carbon capture and storage as an important way to cut the dangerous carbon pollution that’s driving global climate change,” said Ana Unruh Cohen, NRDC’s director of government affairs, in a statement. “We will continue to work to advance the use of carbon capture and storage in ways that help reduce carbon pollution, increase clean energy jobs and phase out our reliance on fossil fuels. We believe we can further those objectives most effectively by working on this issue without being affiliated with a coalition.”