Carbon capture and sequestration ("CCS") technology has the ability to capture up to 90% of carbon dioxide emissions produced by fossil fuel in power plants or industrial processes. Due to the intermittent nature of renewable energy and the still high cost of battery storage, CCS could be an important piece of a low carbon energy solution in the United States. Unfortunately, CCS projects have struggled due to high costs and cost overruns. As a result, there are currently only 18 large-scale CCS facilities in operation worldwide and only one in the United States—the 240-MW Petra Nova power plant located near Houston, Texas.
According to the IEA's Sustainable Development Scenario, 14% of cumulative emissions reductions are expected to come from CCS. This will require 1,000 to 3,000 CCS facilities by 2040. In order to incent additional development of CCS projects, in 2018, Congress passed the FUTURE Act, which substantially expanded the 45Q tax credit related to CCS projects. Importantly, the law removed the 75 million metric ton cap on new CCS projects and increased the tax credit for captured carbon used in enhanced oil recovery ("EOR") from $10 to $35 per metric ton and the tax credit for other CCS projects, including those with non-EOR geologic storage, from $20 to $50 per metric ton. In order to qualify for the 45Q tax credit, construction on the CCS project must begin before January 1, 2024.
Despite the law being passed in 2018, the IRS waited more than a year to issue a notice seeking comments. Final IRS regulations are critical for both project developers and investors to ensure their project will qualify for the new tax credit before making development and investment decisions. After a yearlong delay and pressure from Senators John Barrasso (R-WY), Shelley Moore Capito (R-WV), and Sheldon Whitehouse (D-RI), the IRS finally released Notice 2019-32 on May 2, 2019, seeking public comments on the 45Q tax credit. Final regulations are expected to be forthcoming. CCS proponents hope that the enhanced 45Q credit will jump-start the industry; indeed, the IEA estimated that it could result in up to $1 billion in capital investment in CCS projects over the next six years.
Beyond the FUTURE Act, Congress has continued to consider legislation to promote CCS technology and project development. Senator Joe Manchin (D-WV) introduced the Enhancing Fossil Fuel Energy Carbon Technology, or EFFECT, Act of 2019 in April of this year. In addition, four U.S. senators are proposing a bipartisan bill, the LEADING Act, which would create a program to develop CCS technology for natural gas-generation facilities. According to Lou Hrkman, deputy assistant secretary for clean coal and carbon management with the Department of Energy ("DOE"), the current cost of capturing carbon dioxide is $47 per ton. The DOE's goal is to reduce that cost to $30 per ton and make CCS commercially viable by providing funding for research and development programs and pilot projects. In addition, in June of this year, Senator Michael Bennet (D-CO) and Rob Portman (R-OH) introduced Senate Bill 1763, the Carbon Capture Improvement Act of 2019, which, if passed, would allow the issuance of exempt facility bonds as a means to finance qualified CCS facilities.
Both the enhanced 45Q tax credits and the pending legislation to promote CCS technology should open up new opportunities for the development and financing of CCS projects in the United States. Minnkota Power Cooperative, for example, is in the advanced development stages of Project Tundra, a retrofitting of Unit 2 of its Milton R. Young Station in North Dakota with CCS technology. If successful, Minnkota estimates that the facility could capture on average 3.3 million metric tons of carbon dioxide annually, creating a long-term innovative clean energy solution. Moreover, if Project Tundra is successful, it is likely that other project developers will build on that success, and carbon capture and sequestration may truly become a reality.
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