The Policy Greenhouse

Past CCUS Implementation

The development of CCUS (Carbon Capture, Use, and Storage) Technology has been an important step toward making manufacturing a more sustainable process in the US. CCUS Technology helps to repurpose carbon dioxide that was emitted as a byproduct of any industrial process, such as coal mining, energy production, and natural gas processing plants. The process of adding CCUS technology to these processes has proven difficult, however. In 2008, section 45Q of the United States Internal Revenue code was changed to provide a tax credit to companies that use CCUS technology (so carbon storage and repurposing technology) in order to motivate more companies to implement the technology. While this was a step in the right direction, the issue with this policy change came with its implementation. There were a few issues with the initial policy, such as the low value of the tax credit. The initial policy stipulated that for every ton of carbon captured and stored, a certain amount of dollars would be issued in the form of a tax credit. The dollar amount was quite small when the 2008 policy change went into place, so it failed to motivate the majority of companies to take the costly step of implementing CCUS technology into their operations. Other than failing to motivate companies to take the step to including CCUS tech in their new projects, there came issues with the eligibility of projects to qualify for this tax credit at all. The criteria for the implementation of CCUS technology in these operations were very restrictive, meaning that the tax credit would only be available for companies that had secure geological storage for the captured carbon, or for those that would use the technology for EOR (Enhanced Oil Recovery, injecting CO2 into oil reservoirs to increase oil production). The option to have secure geological storage (which is what coal plants would have to do, as they are not trying to get any oil) for the CO2 was something that many operations did not have, which kept many operations from deciding to use CCUS technology. As a whole, the 2008 version of the CCUS tax credit failed because it did not really make it cheaper for companies to implement the capturing technology in their operations, which failed to motivate them to do so.

The Inflation Reduction Act and the CCUS Tax Credit

The Inflation Reduction Act helped to fix these numerous shortcomings in a couple ways. Firstly, the implementation of the act helped to make the tax credit offered for the implementation of CCUS tech more accessible to companies by making the criteria to qualify for the tax credit much less restrictive. Previously, the annual carbon capture thresholds were quite high for point source capture projects, direct air capture projects, and electricity generation projects. Through lowering the annual carbon capture thresholds, the tax credit is now more accessible, motivating more companies to implement CCUS tech. Secondly, the Inflation Reduction Act helped to increase the rates of the  section 45q credit for companies. For point source capture (the capturing of Carbon from one singular source like a smokestack), the rate has been increased to 85 dollars per metric ton from 50 dollars per metric ton. For direct air capture projects, the rate has increased from 35 dollars per metric ton to 180 dollars per metric ton. Other than changing the guidelines of the tax credit to further motivate companies to make the leap to include more CCUS tech in their projects, the IR act has also helped to make the implementation of this technology cheaper by giving a substantial amount of subsidies to companies to help shift to sustainable energy (like hydro or wind power) as well as implement more sustainable measures for existing coal and natural gas plants. As a whole, these changes to the CCUS tax credit initiative have made the implementation of this technology more realistic through allowing companies to spend on these technologies while still protecting their bottom line.

Sources:

https://insight.factset.com/epa-proposes-carbon-capture-mandate-but-45q-will-still-drive-ccus-investment#:~:text=The%20U.S.%20EPA%27s%20new%20draft,install%20the%20technology%20by%202030., https://www.bloomberg.com/netzeropathfinders/best-practices/incentives-for-carbon-capture-use-and-storage/#:~:text=For%20example%2C%20in%20the%20U.S.,oil%20recovery%2C%20for%20example)., https://www.ey.com/en_us/energy-resources/why-carbon-capture-just-became-an-economic-fastball?WT.mc_id=10822012&AA.tsrc=paidsearch&s_kwcid=AL!10073!3!650236292565!e!!g!!ccus%20carbon&gad=1&gclid=Cj0KCQjwoK2mBhDzARIsADGbjepOVpYxj706bVXdCU8XTrHMKQRsrRBRtkE_2NoAvjrdNUI6e0n_gQwaAit3EALw_wcB, https://www.iea.org/policies/4986-section-45q-credit-for-carbon-oxide-sequestration#