Carbon Capture Coalition Calls for Enhanced Tax Credits

Carbon Capture Coalition Submits Key Carbon Capture Priorities to President Biden's Climate Team

January 21, 2021

The Carbon Capture Coalition has submitted a memo to President Biden's Climate Team, providing a targeted list of climate, energy, infrastructure, and related federal policy recommendations for the first 100 days of the new administration and 117^th Congress. A broad suite of policies will be needed to commercialize carbon capture and removal technologies and enable meeting the administration's goal of a 100 percent clean energy economy and net-zero emissions by 2050.

Building upon landmark bipartisan legislation, including the 2018 FUTURE Act and the recently passed Fiscal Year (FY) 2021 omnibus bill, Congress and the administration now have a critical near-term opportunity to advance a comprehensive and ambitious policy portfolio for large-scale deployment of carbon capture, removal, transport, use and geological storage technologies. Carbon capture is a critical component for the economywide decarbonization needed to meet midcentury climate goals, while also generating new economic opportunities and high-wage jobs across the country.

The Carbon Capture Coalition looks forward to working with the Biden Administration and the 117^th Congress on shared priorities. It is clear that carbon capture and removal plays a pivotal role in meeting mid-century climate goals as we continue to take steps to ensure that a clean energy and industrial economy benefits all Americans.

Read the Coalition's memo to President Biden's Climate Team here.

The Carbon Capture Coalition is a nonpartisan collaboration of more than 80 businesses and organizations building federal policy support for economywide deployment of carbon capture, removal, transport, use, and storage. Our mission is to reduce carbon emissions to meet midcentury climate goals, foster domestic energy and industrial production, and support a high-wage jobs base through the adoption of carbon capture technologies. Convened by the Great Plains Institute, Coalition membership includes industry, energy, and technology companies; energy and industrial labor unions; and conservation, environmental, and energy policy organizations.

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To:
President Biden's Climate Team

From:
Carbon Capture Coalition

Date:
1/21/2021

Re:
First 100 Day Priorities for Carbon Capture, Removal, Transport, Use and Storage

EXECUTIVE SUMMARY

Members of the Carbon Capture Coalition (the Coalition) have prepared this memo to provide input to President Biden's climate team in the areas of climate, energy, infrastructure and related federal policy. Acting on these recommendations will ensure that carbon capture plays the necessary role in the Biden administration's stated goal of meeting a 100 percent clean energy economy and net-zero emissions by 2050, while generating new economic opportunities and good-paying union jobs and ensuring that affected communities and workers are not left behind in this transition.

The United States leads the world in the commercialization of carbon capture, removal, transport, use and storage (or carbon capture), and there is broad bipartisan support for capturing and utilizing CO2 and its precursor carbon monoxide. The U.S. has 13 commercial-scale carbon capture facilities, with the capacity to capture about 25 million tons of CO2 annually, representing approximately half of the 26 operational commercial-scale carbon capture projects operating worldwide.

Large-scale deployment of carbon capture is essential if we are to achieve the economywide decarbonization necessary to meet midcentury climate goals. The International Energy Agency (IEA) projects that the global carbon capture industry will need to scale up to over 2,000 facilities capturing 2.8 gigatons of CO2 per year to limit warming to 2°C.

Deployment of carbon capture also provides a viable pathway for the decarbonization and continued operation of key industrial, manufacturing and energy facilities, thereby avoiding plant closures and the offshoring of jobs and livelihoods. One analysis estimates that capture deployment at industrial facilities and power plants and deployment of associated CO2 transport infrastructure in 21 states across the Midwest, Great Plains, Gulf Coast and Rockies region can support an annual average of up to 68,000 project jobs and 35,800 ongoing operational jobs over a 15-year period and capture 592 million metric tons of CO2 per year.

In 2019, the Coalition released its first-ever Federal Policy Blueprint, which lays the groundwork for a full federal policy portfolio for carbon capture that enhances and builds on the landmark 45Q tax credit. We are currently preparing an updated policy blueprint for early 2021 release, which will expand on the recommendations contained within this memo.

100 DAYS AGENDA: KEY CARBON CAPTURE COALITION PRIORITIES

In this memo to President Biden's climate team, the Coalition has provided a targeted list of recommendations for immediate action that the Biden administration can take through executive

action, as well as areas for collaboration with the 117^th Congress. We look forward to working with the Biden administration on shared priorities around the essential role that carbon capture will play in emissions reduction and ensuring that a clean energy and industrial economy benefits all Americans.

LEGISLATIVE ACTIONS	EXECUTIVE ACTIONS
Enhanced Section 45Q tax credit: Allow for a direct pay option and further extend the commence-construction window to facilitate greater deployment of carbon capture.	Prioritize actions to maximize benefits of carbon capture projects to affected communities.
CO2 transport and storage infrastructure: Provide low-cost federal financing, grants and front-end engineering and design studies to enable deployment of large-scale CO2 transport and storage infrastructure.	Coordinate federal actions to scale up regional hubs for geologic storage of CO2.
Retooled and expanded RD&D programs: Fully fund robust authorizations for Department of Energy cost-share programs for carbon capture research, development, and demonstration contained in the Energy Act of 2020.	Include carbon capture and removal in international climate agreements.
Additional deployment incentives: Enhance other existing federal  incentives to further enable the financing of carbon capture, use and removal projects.
Figure 1: Key Carbon Capture Coalition priorities for the first 100 days.

THE BIDEN ADMINISTRATION'S ROLE IN CARBON CAPTURE DEPLOYMENT

The landmark bipartisan reform and expansion of the federal 45Q tax credit through passage of the FUTURE Act in 2018 is foundational for commercial-scale deployment of carbon capture technologies. However, the commercialization of other low- and zero-emissions technologies such as wind and solar, a broad suite of federal policies will be necessary to enable large-scale deployment of carbon capture technologies.

A federal portfolio of supportive policies includes enhancements to 45Q, other tax credits and incentives, expanded funding for research, development and demonstration (RD&D), and financing and grants for CO 2 transport and storage infrastructure, that together will facilitate and leverage private investment in carbon capture, removal, transport, utilization and storage projects. This expanded policy framework will, in turn, spur continued innovation, increased scale, and improved performance, driving down costs and attracting still more investment that further accelerates deployment.

Project developers and investors have announced over 30 carbon capture and removal projects since the 45Q tax credit was reformed in 2018. However, the full potential of the credit has been severely constrained by several factors: a nearly three-year delay in Treasury and the IRS finalizing 45Q guidance and a final rule, the short timeframe to qualify for the credit and long lead-times for projects, and hurdles encountered by project developers in securing tax equity financing on favorable terms.

Despite these headwinds, the 2020 omnibus bill features the most significant legislative accomplishments for carbon capture and removal since bipartisan enactment of the FUTURE Act, including a two-year extension of the 45Q tax credit and robust RD&D authorizations for research, development and demonstration of carbon capture, removal, use and storage.

Together with the IRS finalizing the 45Q rulemaking in January, these provisions provide long overdue regulatory and investment certainty to unlock billions of dollars in private capital for carbon capture projects, which can now complete the planning, engineering, permitting and financing required to begin construction by the end of 2025 in order to qualify for the credit.

While these accomplishments are significant, they represent only an initial step toward fully enabling commercialization of carbon capture and removal technologies. If carbon capture is to play a role in achieving net-zero emissions by midcentury, we must scale federal investments and policy ambition accordingly. The Biden administration and Congress have a critical near-term opportunity to build on this momentum by advancing a comprehensive and ambitious policy portfolio for carbon capture deployment to deliver on its climate, energy and jobs potential, as part of broader COVID-19, infrastructure and climate actions to be considered during the first 100 days of the new administration and Congress.

ABOUT US

The Carbon Capture Coalition is a nonpartisan collaboration of more than 80 businesses and organizations dedicated to advancing federal policy for economywide deployment of carbon capture, removal, transport, use, and storage. Our mission is to reduce carbon emissions to meet midcentury climate goals, foster domestic energy and industrial production, and support a high-wage jobs base through the adoption of carbon capture from industrial facilities, power plants and ambient air through direct air capture. Coalition membership includes industry, energy, and technology companies; energy and industrial sector labor unions; and conservation, environmental and energy policy organizations.

PRIORITIES FOR THE FIRST 100 DAYS: LEGISLATIVE ACTIONS

Allow for a direct pay option and further extend the commence-construction window for the Section 45Q tax credit to facilitate greater deployment of carbon capture

Building on the recent IRS completion of guidance and a final rule, as well as Congress' two-year extension of the 45Q tax credit, the Coalition's top legislative priority for 2021 is to provide a direct pay option for 45Q, which can be implemented via budget reconciliation with a low budgetary score. A direct pay mechanism is the most important next step Congress and President Biden can take to enable economywide deployment of carbon capture technologies to meet midcentury climate goals, as well as provide a powerful spur for economic activity and job creation at a time when both are urgently needed for our nation's recovery from the COVID-19 pandemic.

Direct pay allows tax credit recipients the option of receiving the value of the credit as an estimated payment on their tax return, in lieu of needing to apply the tax credit to direct tax liability. It provides a vitally important alternative for the large majority of project developers that either lack sufficient taxable income to fully utilize the 45Q credit or are exempt from federal income tax liability (e.g., cooperatives and municipal utilities). Direct pay would alleviate the need for developers of carbon capture, utilization and removal projects to rely on limited and challenging tax equity markets to finance their projects.

The complexity and inefficiency of tax equity transactions impose further costs and burdens on project developers. Tax equity is a suboptimal means of financing carbon capture and removal technologies, even under normal market circumstances, because tax equity investors demand much higher margins than standard sources of capital, particularly for carbon capture projects and other less commercially mature technologies.

According to carbon capture project developers, the terms of tax equity investment typically consume around 20 percent or greater of the value of the tax credit, meaning that the effective value of 45Q tax credits flowing to tax equity-financed projects is roughly 20 percent less than the cost of those same tax credits to the federal government. For example, while Congress intended to provide an incentive of $50 per metric ton for the capture and geologic storage of CO2 in saline geologic formations, at typical tax equity investment rates, a project developer only realizes $40 of that value from the tax credit, with the remaining $10 of the federal incentive lost to the financial transaction.

By contrast, direct pay for 45Q would provide the same incentive value much more directly, efficiently and effectively, unlocking broader financial markets and private capital for investment and resulting in greater deployment of carbon capture, removal and utilization technologies — all at no extra cost to the government.

In addition to direct pay, further extension of the 45Q tax credit is needed to achieve the full emissions reduction potential of the credit. While the two-year 45Q extension in the recently passed 2020 omnibus provides near-term stability and helps project developers move forward with the 30-plus carbon capture projects already in various stages of project development and financing, this action alone will not give sufficient certainty to allow the needed expansion of carbon capture deployment.

More complex and capital-intensive carbon capture projects can have lead-times of five years or more before beginning construction, especially those projects pursuing CO2 storage in saline geologic formations due to longer permitting timelines, or those deploying technology in certain industrial sectors with little or no experience with commercial-scale carbon capture to date.¹ This means that some potential projects starting today already risk missing the newly enacted 2025 commence-construction deadline.

A significant multiyear extension of the 45Q commence construction window remains necessary to provide the long-term certainty for private investment in commercial deployment that will be essential to scaling up carbon capture and removal technologies by midcentury, just as the federal wind production tax credit and solar investment tax credits have anchored long-term private investment in those technologies since 1992 and 2005, respectively.

Provide low-cost federal financing, grants and front-end engineering and design (FEED) studies to expand deployment of large-scale CO2 transport and storage infrastructure as part of a broader infrastructure package

The Biden administration and Congress should prioritize inclusion of CO2 transport and storage infrastructure as a necessary component of any broader infrastructure legislation, given its essential role in helping to achieve net-zero emissions economywide. Similar to the buildout of other forms of infrastructure to support deployment of low and zero-carbon technologies over the next 30 years, scaling a national CO2 transport and storage system will be key to meeting midcentury climate goals.²

Interconnected and responsibly-sited transport systems that collect CO 2 from multiple capture sources and deliver it to shared large-scale commercial saline geologic storage sites, or 'carbon hubs', are the infrastructure backbone needed for economywide deployment of carbon capture and removal at necessary scale.

Additionally, the Coalition is working with sponsors of the SCALE Act to add funding for CO2 transport FEED studies to the legislation upon reintroduction at the beginning of this Congress.

Fully fund robust authorizations for DOE cost-share programs for carbon capture RD&D contained in the recently-enacted Energy Act of 2020

The 2020 year-end omnibus package features robust authorization levels for carbon capture, removal, use and storage RD&D that President Biden and Congress can support as part of a near-term economic recovery package. In particular, money authorized for large-scale pilot projects, commercial demonstration projects and front-end engineering and design (FEED) studies for carbon capture, removal, use and storage projects can drive near-term jobs creation and economic activity, while spurring additional project development.

Additionally, President Biden should fully fund the entire Energy Act package of Department of Energy (DOE) carbon capture, removal, use and storage RD&D authorizations in his Fiscal Year 2022 Budget request to Congress. As Congress works to set budget allocations, lawmakers should support these robust authorization levels for DOE as part of a larger appropriations package.

There are long lead-times in advancing capital-intensive technologies from concept to demonstration to commercialization, which makes federal RD&D investments during the next decade critical to scaling up carbon capture and removal technologies. While DOE funding has played a crucial role in the success of recent large-scale carbon capture and storage projects in the U.S., carbon capture overall has suffered a significant lack of federal investment compared to historic levels of support for other clean energy technologies.

Fortunately, the 2020 omnibus package marks a course correction toward building a more ambitious federal RD&D policy framework and levels of federal investment in carbon capture that will be needed to achieve climate goals. It is imperative that these authorizations be fully funded.

Enhance other existing federal incentives to further enable the financing of carbon capture, use and removal projects

Other existing federal financial incentives beyond the 45Q tax credit either exclude carbon capture projects or require technical modifications to allow projects to qualify. Expanding the suite of financing mechanisms available to carbon capture, use and removal projects will make additional private capital available on more favorable terms, thus increasing future deployment and emissions reduction potential.

The Coalition is also working on a proposal for improvements to the 48B industrial tax credit and will be providing recommendations to the Biden administration and Congress in the near future.

Prioritize actions to maximize benefits of carbon capture projects to affected communities

The jobs associated with carbon capture, removal, use and associated CO2 transport and storage infrastructure projects can bring significant equity benefits to communities and regions by providing the kinds of employment that has traditionally afforded a pathway to the middle class for many American families. However, these skilled, high-wage jobs may not be readily available to disadvantaged communities living in close proximity to facilities.

The communities most vulnerable to climate change also typically suffer the greatest impact from criteria air pollutants. While carbon capture has the potential to play a significant role in addressing both CO2 and criteria air pollutants, much work remains to quantify potential air quality benefits from carbon capture retrofits.

Coordinate federal actions to scale-up regional CO2 storage hubs

The development of large-scale commercial saline geologic storage sites will be critical to meeting broader future net-zero emissions goals. While industry has decades of commercial experience safely storing CO2 geologically at large scale, only one commercial-scale saline storage project exists in the U.S. today. Nevertheless, over half of the current 30-plus announced carbon capture and removal projects in development have already publicly declared their intent to store CO2 in dedicated saline storage sites; therefore, ensuring timely federal permitting of saline storage will be key to bringing carbon capture projects in the development pipeline to fruition.

Carbon capture projects that seek to inject CO2 for the sole purpose of long-term geologic storage are subject to the Environmental Protection Agency's Class VI well rule, which is part of EPA's Underground Injection Control (UIC) Program. The current Class VI permitting timeframe puts projects at risk of missing the commence-construction window to qualify for 45Q, especially when added to the time required to undertake planning, complete FEED studies, secure financing and accomplish other necessary components of project development.

In addition to increasing staffing resources for Class VI well permitting at the state and federal levels, the federal government can better coordinate and engage on the extensive planning that is involved in granting Class VI permits to projects.

Include Carbon Capture & Removal in International Climate Agreements

With the United States re-joining the Paris Agreement, the U.S. will be expected to provide an updated climate target to meet its nationally determined contribution (NDC) and align domestic emissions reductions with the stated goals Paris to limit warming to well below 2⁰C. This is an excellent opportunity for the incoming administration to quantify the expected contribution that carbon capture and removal will make towards meeting President Biden's goal of meeting a 100 percent clean energy economy by midcentury.

Additionally, while carbon capture, use and storage are considered by the UNFCCC Conference of the Parties (COP), carbon removal technologies including direct air capture are currently not considered in emissions accounting frameworks used by the COP. The administration can take steps to ensure that carbon removal, and its important contributions to reaching net zero targets, will be considered by the COP as an important step to ensuring greater international collaboration on RD&D and commercial scaling of carbon removal.

APPENDIX

CARBON CAPTURE'S ROLE IN ADDRESSING CLIMATE CHANGE

Both the United Nation's Intergovernmental Panel on Climate Change (IPCC) and the IEA have concluded that economywide carbon capture technology deployment is critical for achieving global temperature targets. Dramatically accelerated use of carbon capture and removal is required to meet midcentury climate goals.

In modeling of scenarios to limit warming below 2⁰C, the IEA concludes that 15 percent of all emissions reductions to meet net-zero by 2070 must come from carbon capture, with the largest relative emissions reduction contributions coming from carbon capture at industrial facilities. A faster transition to net-zero increases the need for carbon capture. Moving the net-zero goalposts from 2070 to 2050 would require 50 percent more carbon capture deployment.³

The IEA estimates that the global carbon capture industry will need to scale-up to over 2,000 facilities capturing 2.8 gigatons of CO2 per year to limit warming to 2°C. For the more ambitious 1.5°C scenario, the IPCC estimates that 10 gigatons of CO2 must be captured annually.

The Global CCS Institute estimates that more than 2,500 large-scale carbon capture facilities will need to come online by 2040 to achieve the 1.5°C goal; half of these facilities are expected to be in power generation, the other half in industrial sectors. Post-2050, direct air capture will play an increasing role in offsetting any remaining anthropogenic emissions in particularly hard-to-abate sectors such as aviation.

CARBON CAPTURE AS A JOBS CREATOR

Carbon capture deployment at industrial facilities, power plants and direct air capture facilities will retain and grow domestic high-wage industrial, energy and manufacturing jobs. Carbon capture projects provide some of the most desirable clean energy jobs since employment associated with heavy industry (refining, chemicals, cement, steel, etc.) and power plants pays higher than average local wages.

In addition, new and innovative high-skilled and high-wage industries will play a role in commercializing carbon capture, including jobs associated with new negative emissions and carbon utilization technologies. Carbon capture retrofits will reduce emissions from existing facilities, preventing their retirement and loss of associated high-wage jobs.

According to a recent Rhodium Group analysis, carbon capture deployment at industrial facilities and power plants and deployment of associated CO2 transport infrastructure in 21 states across the Midwest, Great Plains, Gulf Coast and Rockies regions can support an annual average of up to 68,000 project jobs and 35,800 ongoing operational jobs over a 15-year period and capture 592 million metric tons of CO2 per year.

A typical direct air capture plant capturing 1 million tons of CO 2 per year can generate roughly 3,500 jobs across the various sectors in the supply chain. The construction, engineering, and equipment manufacturing sectors combined could see at least 300,000 new jobs associated with full scale direct air capture deployment, according to a Rhodium group analysis.

Figure 2: Job Estimates by Facility Retrofit. Building upon modeling of economically feasible capture projects from the Great Plains Institute, the Rhodium Group has provided preliminary analysis of the jobs potential for a typical carbon capture facility across several industries. The range in jobs numbers reflect differences in project sizes in the Great Plains Institute project database. Source: Rhodium Group, 2020.

CARBON CAPTURE BENEFITS TO AFFECTED COMMUNITIES

The communities that are most vulnerable to climate change also typically suffer the greatest impact from criteria air pollutants, and carbon capture has the potential to play a role in addressing both. While the differences between cement plants, refineries, iron and steel, and gas-fired power plants make generalizations about carbon capture's impacts on conventional pollutants difficult, carbon capture retrofits in many instances may significantly reduce conventional pollutant emissions for two primary reasons.

First, prior to CO2 separation and capture, flue gas must undergo pretreatment to remove criteria air pollutants including sulfur oxides, particulate matter, and nitrogen dioxide to protect the solvent used in carbon capture from degradation. Second, installation of carbon capture may result in facilities having to meet more current and usually stricter emissions standards.⁴

Because carbon capture retrofits are capital intensive, there is little risk of old, inefficient and polluting facilities extending their lives by adding carbon capture. Younger, relatively more efficient, long-lived plants pose the most significant challenge to climate change; without capture, they will emit CO2 unabated, potentially for decades. However, more research is needed to understand air quality impacts from carbon capture retrofits at different types of carbon capture facilities in different industries and then to develop appropriate mitigation measures where necessary in response to the findings of that analysis.

CONCLUSION

In summary, economywide deployment of carbon capture, removal, transport, use and storage is essential if we are to achieve the economywide decarbonization necessary to meet midcentury climate goals. We must implement lessons learned from our successful experiences commercializing wind, solar and other low and zero-carbon technologies to implement a broader policy framework for large-scale carbon capture deployment.

Deployment of carbon capture and removal also provides a viable pathway for the decarbonization and continued operation of industrial, manufacturing and energy facilities, thereby avoiding plant closures and the loss of jobs and livelihoods. This must be accompanied by additional job training, environmental policy and other measures to ensure that reductions in carbon emissions are accompanied by economic, public health and other benefits at the community level.

The U.S. is the world's leader in the capture, use and storage of carbon emissions, with nearly 50 years of successful commercial and operational experience across multiple sectors to leverage in building new industries and associated high-wage jobs. Expanding on the deeply bipartisan success of the 2018 FUTURE Act and subsequent bipartisan tax and RD&D provisions in the 2020 omnibus, the Biden administration and the 117^th Congress have the opportunity enact a broad portfolio of federal incentives and other policies to commercialize carbon capture, removal, transport, use and storage.