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Way Down in the Hole, Part 6 - Carbon-Capture Projects Hold Promise, But Hurdles Remain

When U.S. lawmakers introduced the 45Q tax credit in 2008, they were planting a seed they hoped would one day sprout into a flourishing carbon-capture industry. As the years wore on and the number of successful projects remained small, they added a little fertilizer in 2018, not only enhancing the value of the credits but easing some of the limitations in the earlier legislation. It’s now 2022 and, with climate concerns and the energy transition at top of mind, Washington is again looking at ways to make the tax credit more effective and spur new growth in carbon-capture projects. In today’s RBN blog, we look at how economic and technological challenges have so far limited the success of carbon-capture initiatives.

We’ve written a lot about carbon capture at RBN over the last few months as part of this series, starting with the basics of carbon capture and sequestration (CCS) and the carbon dioxide (CO2) value chain, then continuing by taking an extensive look at the federal 45Q tax credit, including how it was designed and why the cost to capture CO2 from some industrial sources is uneconomic even at higher incentive levels. We’ve also examined legislation that could expand the size and reach of those credits, along with some underlying reasons why the credit hasn’t been more successful. The tax credit was also the subject of our latest Drill Down Report.

From the way the tax credit was designed, to the level of incentives offered, to technological readiness, there are a number of reasons for the lack of notable carbon-capture successes. In part due to these limitations along with the cost of capturing CO2 noted in Part 4, the 45Q tax credit may have been insufficient to overcome some of the other obstacles of carbon-capture projects. Two obstacles that we’re going to look at today are the difficulties in scaling up some of the newer technology that came out of pilot and demonstration projects, as well as economic factors other than the value of the 45Q credit itself.

There were 27 commercial-scale carbon-capture projects operating worldwide in 2021, with 12 of those in the U.S. across a variety of sectors: the production of fertilizer, ethanol (a subject of a future blog in this series), petrochemicals and hydrogen, as well as natural gas processing. (That doesn’t include two projects that have been suspended, one that aimed to capture CO2 from coal-fired power generation, the other involving natural gas processing. We’ll touch on those shortly.) Globally, there are also projects in operation to capture emissions from iron and steel production and coal-fired power generation, with most of the 31 projects currently under construction or in advanced development centered on gas-fired power, coal-fired power, and hydrogen or ethanol production, with still others that focus on cement production or feature direct air capture (DAC) technology.

[RBN Energy’s U.S. CO₂ Infrastructure map brings together legacy Enhanced Oil Recovery (EOR) assets, as well as announced large-scale Carbon Capture and Sequestration (CCS) and Carbon Capture, Utilization and Sequestration (CCUS) projects, all in our signature concise, accurate, and intelligible style. Click here for more information.]

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