Written by: Doug Scott, Vice President, Strategic Initiatives, Great Plains Institute.
A work group of state officials convened in 2015 by Wyoming Governor Matt Mead and Montana Governor Steve Bullock, and joined by colleagues and officials in 12 other states, released a new report outlining growing opportunities for capturing carbon dioxide from industrial facilities and power plants for use in enhanced oil recovery (CO2-EOR) with geologic storage.
The report, “Putting The Puzzle Together: State & Federal Policy Drivers for Growing America’s Carbon Capture and CO2-EOR Industry”, includes detailed analyses and federal and state recommendations of the State CO2-EOR Deployment Work Group. The Work Group includes leading private sector stakeholders and CO2-EOR experts, in addition to the state officials.
The report notes that market forces and federal and state policy are driving the energy industry to reduce carbon emissions and that carbon capture with CO2-EOR compares cost-effectively with other carbon emissions reduction options.
The Work Group recommends a targeted package of federal incentives for CO2-EOR, including:
- Improving and expanding the existing tax credit for storage of captured CO2, by both raising the amount of the existing credit, and improving the conditions for its use;
- Deploying a revenue-neutral mechanism to stabilize the price paid for CO2—and carbon capture revenue—by removing volatility and investment risk associated with CO2 prices linked to oil prices (thus providing a more predictable revenue stream for project developers and investors); and
- Offering tax-exempt private activity bonds and master limited partnership tax status for CO2-EOR projects to provide project financing on better terms (these mechanisms are already common and have proven effective for other types of energy project development).
States can also assist by optimizing existing taxes commonly levied by states to complement federal incentives in helping carbon capture projects achieve commercial viability. Analysis undertaken for the work group shows that an optimized approach to state taxes can add the equivalent of roughly $8 per barrel of oil to the economics of a carbon capture project.
The work group endorsed a targeted package of federal and state incentives for CO2-EOR that will help ensure that CO2-EOR becomes an integral part of our future energy system. While the technology for CO2-EOR has been in use for almost half a century, the costs of deploying carbon capture at power plants remain high. The economics have been further hampered by both low natural gas prices that makes new conventional natural gas plants cheaper and low oil prices that reduce revenues from the sale of captured CO2. These incentives can make projects viable by closing the economic gap between the cost of installing carbon capture at power plants versus building new conventional natural gas units.
Based on modeling results and qualitative criteria, the work group identified the extension, reform and expansion of the Section 45Q tax credit as its top priority for stimulating commercial deployment of carbon capture at power plants and industrial facilities.
The work group report is timely, as Congress has recently been considering Section 45Q tax credit reforms. The Carbon Capture, Utilization and Storage Act (S. 3179) introduced by Senator Heidi Heitkamp (D-ND) was co-sponsored on a bi-partisan basis by one-fifth of the U.S. Senate. Bipartisan companion legislation in the U.S. House, the Carbon Capture Act (H.R. 4622) introduced by Representative Mike Conaway (R-TX), has attracted 49 co-sponsors. Governor Mead and Governor Bullock have endorsed these bills in letters to Congress, as has the Western Governors Association and Southern States Energy Board.
While the legislation did not ultimately pass in the 2016 session of Congress, the large number of bipartisan sponsors suggests that similar legislation is expected to be introduced this year.
The Work Group report emphasizes that complementary federal and state incentives will spur commercial deployment of carbon capture by enticing private investment into projects. This will, in turn, bring down costs over time, just as incentives have similarly accomplished for other energy technologies such as wind and solar, thus prompting a number of states to add carbon capture with CO2-EOR to the mix of energy choices they consider. The Work Group has also released a report on C02 pipeline infrastructure, and is working on a report concerning dispatch of power from CO2-EOR facilities onto the power grids.