Debating Carbon Capture, Utilization, and Storage
In response to growing energy demand, coupled with ambitious net-zero emissions goals, an expanding array of emissions scenarios now integrate carbon capture technologies as a necessary strategy to mitigate climate change and control rises in global temperature.
Carbon capture, utilization, and storage (CCUS) and carbon dioxide removal (CDR) encompass the process of capturing or removing, compressing, transporting, and sequestering or storing substantial volumes of carbon dioxide (CO2). This endeavor aids in the reduction of greenhouse gas concentration in the atmosphere and mitigates the adverse effects of climate change.
The Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA) have mobilized an impressive sum of over 14 billion dollars to CCUS deployment, reflecting Washington’s tangible endorsement of the emerging technology. While the BIL allocated billions to support the development and implementation of CCUS projects, the IRA introduced tax credits specifically aimed at supporting carbon removal technologies, which are projected to add several billions more.
Previously, the existing 45Q tax incentive, introduced in the Energy Improvement and Extension Act of 2008, only provided adequate funding for relatively straightforward carbon capture projects, such as capturing CO2 from ethanol processing facilities that produce nearly pure CO2 emissions during corn fermentation for vehicle fuel. However, capturing CO2 from power plants and other industrial sources that produce a mix of gasses is more intricate and costly, due to the requirement of separating out the carbon dioxide.
With the passage of the IRA, the incentive to permanently store carbon dioxide byproducts from industrial facilities, including power plants, increased from $50 to $85 per ton. This increase means that projects capturing CO2 from industrial facilities with lower CO2 concentrations, such as natural gas processing facilities and cement plants, are now financially feasible.
Furthermore, the bill streamlines the process for receiving tax credits and extends the subsidy to smaller carbon capture projects. These measures, in conjunction with previous government support from the BIL, are anticipated to facilitate a 13-fold growth of the carbon capture industry by 2035.
The injection of funding to support the industry has sparked a contentious debate about how to spend federal dollars on climate mitigation. Advocates of carbon capture technology assert that CCUS can play a pivotal role in the transition to a low-carbon future, particularly for hard-to-decarbonize industries like steel and cement production.
Conversely, critics contend that CCS functions as a mere facade, granting polluting industries a social license to continue emitting greenhouse gasses while claiming to address their impact. Particularly in light of the $60 per ton tax credit for enhanced oil recovery (EOR), environmentalists are concerned that these tax credits are subsidizing the extraction of additional oil from existing wells and, by extension, enabling energy interests to prolong fossil fuel dependence.
When it comes to deploying CCUS, there should be less focus on decarbonizing the power sector and more focus on decarbonizing industrial applications with significant process emissions, like cement, iron, or steel.
As it now stands, the commercialization of carbon capture, utilization, and storage for purposes of fossil fuel mitigation is untenable because of the significant financial and opportunity costs involved. The infrastructure bill, to illustrate, directs billions of dollars toward generating electricity and producing hydrogen from fossil fuels in conjunction with carbon capture and storage—an approach which relies on carbon-intensive energy sources, locks in fossil fuel infrastructure, and bears significant financial costs that might be better spent elsewhere.
This large price tag on a CCUS retrofit is problematic when one considers that wind and solar power are more cost-effective compared to fossil fuels, even without factoring in the additional expenses associated with operating carbon capture equipment.
The central question policy makers should be asking is whether or not these new CCUS measures meaningfully contribute to carbon abatement efforts. While the tax credits are instrumental in incentivizing necessary initiatives, like carbon drawdown, the profit-motivated system established by the 45Q tax credit opens the door for needless and even counterproductive projects that take time and resources away from more critical initiatives.
Given the extended preparation periods, limited familiarity, and the possibility of CCS projects overshadowing or postponing more efficient alternatives, regulators must exercise great caution when considering CCS proposals for the power sector.
