FUTURE Act Passage Will Spur Carbon Capture Activity

Written by: Doug Scott, Vice President, Strategic Initiatives, Great Plains Institute and former Chair & Commissioner, Illinois Commerce Commission

Chairman Scott

Doug Scott

Recent passage of federal legislation may significantly change the economic prospects for coal plants and other industrial facilities that incorporate carbon capture technology. The wide-ranging budget bill passed by Congress and signed by the President in February includes the FUTURE Act, bi-partisan legislation introduced last year in the U.S. Senate to reform the federal tax credit for capturing and storing carbon dioxide (CO2) from power plants and industrial facilities.

The lead Senate sponsors of the FUTURE Act were Heidi Heitkamp (D-ND), Shelley Moore Capito (R-WV), Sheldon Whitehouse (D-RI), and John Barrasso (R-WY). They were joined by over 20 additional Senate co-sponsors. Congressman Mike Conaway (R-TX) led a similar bi-partisan effort in the U.S. House.

Specifically, the bill does the following:

Enhanced Tax Credit

The legislation increases the amount of the credit to $35 per ton for CO2 stored geologically through enhanced oil recovery (EOR), and $50 per ton for CO2 storage in other geologic formations, and not used for EOR or other purposes. The prior credit of $10 and $20 respectively, simply did not sufficiently close the gap that makes capture projects economic. The difference in the credit amounts for beneficial use and storage are to recognize that captured CO2 has a value that can be realized in certain marketplaces, such as for EOR.

Lifting the Credit Cap

Prior to the passage of this legislation, the tax credit was capped at 75 million tons of captured CO2, available on a first-come, first-serve basis. This caused uncertainty for projects, as developers didn’t know if the credits would be available to them. This was not discernable until after a project was financed, which meant the credit couldn’t be used to attract private finance. The new legislation removed the cap on credits.

Lowering the Capture Threshold

The new legislation will allow more projects to be eligible for the credits, by lowering the threshold of metric tons of CO2 needed to be captured in order to qualify. The previous level was 500, 000 tons, which remains for electric generating units in the new act. But it has been lowered to 100,000 metric tons for all other industrial facilities. This will allow more facilities to participate, and should result in additional captured CO2. This expansion will be very important for facilities such as ethanol production.

Greater Flexibility in Who Claims Credit

Before passage of the new act, the tax credit could only be claimed by the company that both captured and stored (physically or contractually) the CO2. In the new construct, the owner of the carbon capture equipment is the recipient of the credit. The recipient can allow another entity involved in storing or beneficially utilizing the CO2 to claim the credit. Because these projects are very often complicated, involving multiple players, allowing this flexibility may allow for better credit utilization and likely easier financing in many instances.

The FUTURE Act had wide, bi-partisan support. As mentioned earlier, it was co-sponsored by one-quarter of the Senate, with great geographic and philosophic diversity. And efforts to enhance the carbon capture tax credit received support from a number of Governors, and organizations including the Western Governors Association (WGA), the Southern States Energy Board (SSEB) and the National Association of Regulatory Electric Commissioners (NARUC).

Significant support also came from the Carbon Capture Coalition (formerly the National Enhanced Oil Recovery Initiative), a wide-ranging stakeholder group that energy, industrial and technology companies, energy and environmental policy organizations and labor unions.

Reforming the 45Q tax credit was also the cornerstone of policy recommendations put forth by a bi-partisan State CO2-EOR Work Group consisting of 14 states from around the country. The bi-partisan support for this legislation is rarely found today, especially on issues involving energy.

It is anticipated that passage of this legislation, for the reasons listed above, will result in a number of new carbon capture projects moving forward. This should thus provide a role for carbon capture at coal and natural gas plants going forward, and add them to the mix of potential sources of energy as we plan our energy future.