Oil and Gas

What the US Inflation Reduction Act means for carbon capture, utilization, and storage (CCUS)?

  • The Act extends the 45Q-eligible CCUS projects’ construction deadline to 2033,
  • increases the 45Q tax credit amounts,
  • provides a broader definition of what facilities may qualify for the credits,
  • allows project developers to take direct payment instead of the credit for the first 5 years, and
  • adjusts the amount that the credit is reduced by for CCUS projects financed by private activity bonds.

On August 16th, US President Joe Biden signed the Inflation Reduction Act (IRA). The IRA is the most meaningful climate bill ever passed in the country and it has the potential to significantly decrease the greenhouse gas emissions (GHG) over the next years.

The Act allocates $369 billion on clean energy and climate change mitigation initiatives – it is the country’s most significant attempt to tackle the climate crisis in the past decade or more. It is expected that the IRA will reduce US GHG emissions by around 40% below 2005-levels by 2030.

The IRA highlights the importance of multiple sources of clean energy, like energy storage, nuclear power, hydrogen and CCUS. There is no preferred carbon neutral solution or a technology leader. However, the Act significantly increases the availability of the federal income tax credits, often referred to as 45Q credits, available for domestic CCUS projects. Credits are designed to drive corporate capital investments in carbon capture initiatives. The IRA now makes it easier for CCUS projects to qualify for 45Q credits; and it provides significant new ways for monetizing those credits. The Act also extends the deadline to begin construction on 45Q-eligible projects from 2026 to 2033.

The new law reduces the minimum capture requirements for obtaining 45Q’s, as well as allows direct payments for the full value of credits for the first 5 years of a project’s operation instead of tax credits.

Under the Act, tax credits for capturing CO2 at power plants and industrial facilities will increase from $50/ton today to up to $85/ton if the carbon dioxide is stored. If the carbon is used for oil drilling operations (Enhanced Oil Recovery or EOR), the credit would increase from $30 to $60/ton. Credits for capturing and removing CO2 at direct air capture (DAC) facilities will also change significantly: from $50 to $180/ton if CO2 is stored, and from $35 currently to $130/ton if it is utilized or used for EOR.

So far, the development of CCUS technologies has been slow. The initial costs are high, projects require kilometers of pipelines and vast amounts of available underground storage – both can trigger local and social backlash. Today, there is only a dozen of active CCUS facilities in the US and a couple of DAC projects removing a small amount of CO2 directly from the air. However, the IRA may significantly increase the number of CCUS opportunities in the coming years.

The expanded availability of the 45Q credits, broadened scope of qualifying CCUS facilities, and simplified monetization of 45Q credits could encourage new investors to participate in the US-based CCUS projects; and should ensure that CCUS opportunities will be a significant feature of energy transition and decarbonization efforts in the US.

CCUS continues to emerge as a low-cost solution, it is vital for achieving the net-zero goals. At Schneider Electric, we address the entire CCUS value chain, optimize and secure related processes by combining hardware and software, to deliver reliable and sustainable operations. We can also provide automation around carbon capture, process optimization and simulation, as well as energy efficiency improvement. We support CCUS projects, from design to FID and CO2 transportation, and storage.

To learn more about products and services, please, visit: https://www.se.com/ca/en/work/solutions/for-business/energies-and-chemicals/


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