Capturing carbon dioxide and permanently storing it below ground is expected to be a critically important tool in the global effort to reduce greenhouse gas (GHG) emissions. The oil and gas industry has been a leader in showing how CO2 –– albeit mostly CO2 that is produced from underground reservoirs, not captured from industrial facilities or power plants — can be used and sequestered via enhanced oil recovery (EOR). The catch is that capturing CO2 and using it for EOR or injecting it into deep wells for eternal storage doesn’t come cheap and so government incentives are required to justify investment in carbon-capture projects. Enter the 45Q tax credit. First made available for U.S. carbon-capture projects in 2008, it has been expanded considerably since then and could soon be expanded further, although its results to date are a mixed bag at best. In today’s RBN blog, we discuss key aspects of the tax credit, how it has changed over time, and what may be coming down the pipeline.
Carbon-capture projects have been a frequent topic in the RBN blogosphere due to its appeal to the energy industry, as described in Bullet the Blue Sky, and the attention it has received in Canada, which we detailed in our Forever And For Always series. We took a deep dive into carbon sequestration in Part 1 of this series. Sequestration is the permanent storage of CO2 in the ground with the aim of keeping that important GHG permanently out of the atmosphere. If CO2 is captured and stored, and that’s all, the process is called carbon capture and sequestration (CCS). If the CO2 is used for some other process (such as EOR) before it’s stored, it’s called carbon capture, use, and sequestration (CCUS). We also talked quite a bit about how CO2 is transported and the U.S. pipeline networks that exist to move it from place to place.
We turned our focus in Part 2 to the CO2 value chain, tracing CO2 from its initial sources of supply (either manmade or naturally occurring) through EOR and onto a wide variety of end uses, from industrial processes like fertilizer production to use in the food and beverage industries.
Now that we’ve covered the basics of upstream and downstream CO2 markets, we’ll turn our attention to an economic incentive that aims to promote major investments across the energy landscape — the Internal Revenue Code’s carbon oxide sequestration credit, better known as 45Q. The measure has drawn a lot of attention in recent months, both from those who see it as a tool to aid in the energy transition and the push for cleaner energy, as well as those who see the potential for the credit to help support low-carbon project economics. We’ll also mention a couple of highly touted projects that ultimately failed, but defer our judgment of the policy’s current and future effectiveness for another blog in this series.
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