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Way Down in the Hole, Part 11 - Carbon Capture Gets a Big Boost in Biden's Climate Bill

The 45Q tax credit has been the federal government’s main tool to incentivize the development of a carbon-capture industry. If the original legislation that created the credit in 2008 was intended to get things started, and the credit’s 2018 expansion designed to give the industry a further boost, the newly enacted Inflation Reduction Act (IRA) — which focuses on clean energy, despite its name — aims to propel carbon capture into the big time. In today’s RBN blog we look at changes made to the 45Q tax credit under the IRA, from the scope of the enhanced incentives to how they could boost carbon-capture opportunities for all types of projects.

As we noted in Name Game, a key element in President Biden’s 2020 campaign was a promise to reduce the use of fossil fuels and greenhouse gas (GHG) emissions and promote the development of a clean energy industry. U.S. GHG emissions have generally trended lower over the past 18 years, but not at the speed required to reach net-zero emissions by 2050 or to reduce emissions by 50%-52% (from 2005 levels) by 2030, the U.S. target under the Paris agreement. The IRA, which was signed into law by the president on August 16, includes a host of clean-energy priorities but might have its biggest impact on carbon capture, a topic we’ve written about extensively in this series.

Although carbon capture and sequestration (CCS) projects have gained significantly more attention in recent years as environmental, social and governance (ESG) concerns have risen and governments have begun to focus on ways to reach net-zero targets, the carbon-capture industry itself is still in its infancy. Most estimates put its size at about $2 billion/year, but ExxonMobil said in April that it expects the global carbon-capture industry to be a $4 trillion market by 2050 — or about 60% of the size of the overall oil and gas market, which it puts at $6.5 trillion by that date. Occidental Petroleum (Oxy), which is already invested in CO2 markets for its enhanced oil recovery (EOR) operations, has a similar outlook for the carbon-capture market, which it says could be worth $3 trillion to $5 trillion by mid-century. With the IRA now signed into law, let’s look at how it could transform the carbon-capture market, and discussions begin with the federal 45Q tax credit.

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