While the energy transition continues to gather pace, carbon dioxide (CO₂) emissions are still at large. Carbon capture and storage (CCS) has been hailed as a potential solution to this problem, enabling CO₂ to be captured at the source of emission, then transported to and stored in underground geological formations.
However, the technology has not been the easiest to roll out, mainly due to financial risks. CCS projects require large initial investments without offering certain rates of return on capital. For instance, investors are hesitant to take on the sunk costs of building transport infrastructure for captured CO₂, such as pipelines, especially when faith in the technology is not yet universally sound.
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As a result, the government has an important role to play in incentivising investment.
Over the past ten years, the US Government has attempted to expand CCS through a variety of financial schemes. Between 2011 and 2023, the federal government appropriated $5.3bn for carbon storage research, resulting in the establishment of 15 facilities that capture 22 million tonnes per annum (mtpa) of carbon – around 0.4% of the nation’s current annual CO₂ emissions.
A further 121 CCS projects are currently under construction or in development. Should they all be completed, they would increase the nation’s CCS capacity to reduce 3% of current annual CO₂ emissions.
Whoever wins the election in November will need to continue inducing capital formation in the industry. Power Technology reviews the Democratic and Republican parties’ approaches to CCS, forecasting what each party’s victory will mean for the industry.
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By GlobalDataDemocrats: CCS ambitions for a greener future, with faulty execution
In November 2021, Congress passed the Infrastructure Investment and Jobs Act (IIJA) put forward by President Joe Biden. Signalling the Biden administration’s desire for CCS to drive the energy transition, the bipartisan act provides $8.2bn in advance appropriations for programmes over the 2022–26 period. Under the terms of the act, funding will only be provided to large-scale projects, as economies of scale are sought to drive costs down.
The IIJA also led to the creation of the Carbon Dioxide Transportation Infrastructure Finance and Innovation Act programme, which received $2.1bn through the IIJA to offer loans and guarantees for the construction of CO₂ pipelines.
Along with direct funding of CCS projects and related infrastructure, the Biden administration has made some important changes to the tax layout to incentivise investment.
In 2008, a provision was created in the federal tax code allowing companies that use CCS to apply for a credit to reduce their taxes. Companies are eligible for the section 45Q credit if the amount of CO₂ they capture per year meets a threshold, with the value of the credit being greater if the captured carbon is geologically sequestered rather than used for enhanced oil recovery.
According to the Treasury, a total of around $1bn of section 45Q credits were claimed between 2010 and 2019.
Under the reconciliation act of 2022, the Biden administration adapted the terms of the credit, extending the date by which construction must begin on a CCS facility to 1 January 2033 from January 2026. The law also reduced the annual CO₂ capture threshold by 96% and increased the value of carbon to be geologically sequestered by 70% to $85 per tonne, further incentivising the CCS industry to help meet the country’s transition goals instead of encouraging the expansion of the oil industry.
The Biden administration has attempted what economist John Maynard Keynes referred to as the “socialisation of investment”, rather than full-blown state ownership of CCS infrastructure, using favourable tax conditions and subsidies to positively influence the expected rate of return and encourage large, fixed capital investment.
However, opinions vary on the effectiveness of such measures. The staff of the Joint Committee on Taxation Projects say the section 45Q credit will lead to a loss of around $5bn worth of federal revenues over the 2023–27 period, while the US Treasury found in a recent investigation that of the $1bn in section 45Q tax credits claimed from 2010 to 2019, $900m had been obtained through false reporting to the Environmental Protection Agency.
The section 45Q tax credit has also come under scrutiny as critics claim it failed to encourage new CCS projects. The Biden administration has indeed suffered from low rates of project realisation among funding recipients, according to Francesca Gregory, senior energy transition analyst at Power Technology’s parent company GlobalData.
“While the administration has been proactive in its attempts to encourage the emerging market, it has so far fallen short of expectations,” she says.
Nevertheless, one cannot discount the potential. In theory, the section 45Q credit could lead to an additional CO₂ capture capacity of at least 100mtpa by the early 2030s, although the government revenue loss over this period could be anywhere between $30bn to well over $100bn.
At the time of writing, the Democrats have not yet selected their nominee to replace President Biden in the upcoming election, after the octogenarian president announced his intention not to run again on 21 July.
Should a Democrat be re-elected in November, it is likely funding and tax breaks for CCS will continue, considering the section 45Q tax credit is set to run through to 2033 and IIJA funding until at least 2026. Given the party’s history of supporting the transition, the country can also expect further support for the industry if the Democrats deem it necessary for a cleaner energy future.
“While a re-elected Democrat candidate will likely put a continued emphasis on CCS, continued spending will need to be qualified in terms of projects reaching operation and achieving real emission reduction,” Gregory adds.
Republicans: promoting CCS to mask increased fossil fuel production
According to the latest New York Times national polling average, which pits Donald Trump against the likely Democrat nominee Kamala Harris, Trump leads public opinion by 3%. While the Democrats’ campaign continues its chaotic trajectory, one cannot ignore the implications of another Trump presidency, which seems increasingly likely.
The last Trump administration was considered one of anti-energy transition policies. He hauled the US out of the Paris Agreement and issued an executive order during his first few weeks in office that ensured that for every new climate regulation, two had to be eliminated.
However, he provided support for CCS. In December 2020, the Utilising Significant Emissions with Innovative Technologies (USE IT) Act was signed into law, freeing up funds for research into CCS projects and simplifying their permitting process. In 2018, his administration offered a lucrative tax break for CCS construction at industrial sites. At least 12 CCS projects were announced throughout Trump’s term after the tax break was announced.
Unlike the Democrats whose push for CCS was motivated by environmental concerns, the last Republican administration showed support for the technology as it allows fossil fuel producers to pollute more, using CCS to offset the additional pollution.
In this way, CCS can enable and, arguably, encourage further use of fossil fuels.
In fact, the oil industry used CCS long before it became a fashionable transition technology. First use dates to the 1930s, and it has been a tool in oil production since the 1970s.
In other words, just because Trump supported CCS during his Presidency does not mean he did so for pro-climate reasons.
Speaking of this dilemma, Gregory says: “It therefore remains to be seen whether the technology would simply emerge as a funding mechanism for continued oil and gas production or as a legitimate carbon removal mechanism.”
Considering Trump’s history, energy transition analyst at GlobalData Clarice Brambilla says it is likely that he too will promote CCS projects. “If Trump wins, the clean energy priorities of fossil fuel companies, such as CCS, are likely to be favoured over other clean energy segments such as offshore wind, which saw their permitting stalled under his first term,” she says.
Therefore, while Republicans are expected to support CCS like the Democrats, this could be a smokescreen for increased fossil fuel production.
Regardless of the election outcome, CCS is set to gain support from the US Government for the coming years. However, the viability of CCS as an effective tool for furnishing the country’s energy transition is still under question.
The Biden administration supported its rollout, but many projects have been slow to come online despite significant funding. Whoever the Democrat nominee will be, they will need to demonstrate how funding will translate into tangible results, within an achievable time frame.
If the Republicans are elected, they could use CCS as an excuse to increase fossil fuel production. However, the motives behind the party’s support will have to be assessed in the context of their wider energy agenda.
