12 minute read
New Solutions in Carbon Capture for Age-Old Problems
The Inflation Reduction Act (IRA), recently signed into law by President Biden, is a wide-reaching piece of legislation that includes the largest climate investment ever made by Congress. With $369 billion allocated for cutting emissions, developing clean energy technology, and advancing environmental initiatives, the IRA is projected to reduce the country’s carbon emissions by around 40% by 2030.
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Currently, 30% of global emissions are from hard-to-abate industrial sources, such as cement, steel, refineries, and energy from waste, and the industrial and power generation sectors together make up around half of U.S. emissions. Any comprehensive undertaking to curb carbon emissions and tackle climate change in the country must involve capping the emissions coming from these traditional heavy industries. However, for many of these industries, there are few currently available options to decarbonize.
This is where carbon capture, utilization, and storage (CCUS) comes in. Post-combustion, point source carbon capture, in particular, will be crucial to achieving the IRA’s goals, as it is often the only realistic means of decarbonizing certain heavy industries, especially for those industries with significant process emissions (where CO2 is released from chemical reactions in the manufacturing process e.g. cement).
But the rollout of CCUS projects has been slow, primarily due to the high costs of conventional carbon capture, and the uncertainty that so often exists in new markets. This is where the IRA will play a significant role.
The IRA provides both the necessary financial incentives and market certainty that are required to develop the projects, transportation, and storage needed for a thriving industrial carbon capture sector.
Of particular note are the substantial increases in the availability of 45Q credits – the federal income tax credit program available for domestic CCUS projects. Other changes include:
• Allowing companies with smaller tax liabilities to take advantage of 45Q by permitting the tax credit to be collected as a direct cash payment, rather than a tax deduction, for the first five years that a project operates. • Dramatically lowering the total amount of CO2 that a project must capture each year to qualify for the tax credits. • Extending the deadline to begin construction on 45Q credit-eligible projects from 2026 to 2033.
These changes will stimulate innovation and the necessary scaling of the carbon capture sector in the coming decade. For example, lowering tonnage thresholds will improve the investment opportunity
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by incentivizing larger investments and attracting new investors to smaller projects. (Previously, only the largest carbonemitting projects could meet the capture requirements.)
While the tax credit alone won’t support the necessary R&D, it will serve as a catalyst, attracting the private investment that is needed to rapidly scale the development of carbon capture, utilization, and storage solutions.
The IRA also conditions the availability of the enhanced 45Q credits on satisfying wage and apprenticeship requirements, essentially guaranteeing that these projects provide well-paying jobs and training opportunities. Many of the traditional industries that can decarbonize using carbon capture technology, employ millions of people across the United States, including the domestic oil and natural gas industry which supports nearly 10 million jobs alone (5.6 percent of total U.S. employment). With the IRA’s help, the deployment of carbon capture solutions will not simply preserve jobs for working families in essential industries but generate great career opportunities for people in this newly thriving clean tech sector.
Taken alone, these changes are a monumental win for a burgeoning industry committed to aiding the country’s energy transition. However, the IRA’s passage also coincides with a remarkable shift within the carbon capture sector.
The sector has so far been dominated by large, bespoke, and expensive plants, which have made carbon capture challenging for the majority of companies. But a new generation of cost-effective, standardized, and modular units is being developed that will dramatically reduce the costs of carbon capture.
Carbon Clean is leading this shift towards compact carbon capture. Our technology has already been proven at scale in over 44 sites around the world. A year ago, we launched our groundbreaking CycloneCC technology – a fully modular, prefabricated, and skid-mounted carbon capture solution. CycloneCC will reduce the overall cost of carbon capture by up to 50% and has a footprint that is up to five times smaller than conventional units – crucial for many industrial companies that have almost no space available to retrofit carbon capture technology on site.
We are currently commercializing CycloneCC with partners, including projects in the U.S. with Chevron and CEMEX. Chevron was the lead investor in our recent $150m Series C funding round and is a key strategic partner for us, with a strong shared understanding of the potential for modular carbon capture technology to deliver for American industries.
There is already an uptick in carbon capture projects globally: over 100 new facilities were announced in 2021, and many companies are considering how carbon capture could work for them. Our recent refineries survey, for example, found that 55% of respondents intend to install a CCUS system in the next decade. A 2021 survey of executives working in hard-to-abate industries found that 65% see CCUS as ‘critical’ or ‘important’ for reaching their 2030/2050 goals and 60% have CCUS adoption plans for the next decade.
The IRA will build on this momentum, fostering vital projects that will support CCUS innovation at exactly the right time.
This summer’s passage of the federal funding package was a historic accomplishment, and not just for obvious reasons. The IRA has made the country one of the best places in the world to develop industrial carbon capture projects. In doing so, it will ensure the U.S. is also at the forefront of a new era for carbon capture – protecting and creating jobs, as well as mitigating climate change.
About the author: Aniruddha Sharma is Chair and CEO of Carbon Clean – a leading provider of point source carbon capture solutions for hard-toabate industries such as cement, steel, refineries and energy from waste. Aniruddha has been instrumental in developing the company into a global leader in the carbon capture sector, with a relentless focus on innovation.
Will Permitting Reform Go Forward in December?
By: Gary Kruse
Perhaps the best chance to pass a permitting reform was recently lost when what originally was a bipartisan effort became about payback partisan politics. Continued polarization is the greatest enemy of our nation’s energy security. Flip-flopping between political and ideological extremes makes a long-term investment in any type of energy infrastructure — traditional or renewable — risky at best and impossible at worst.
In late August, Senators Schumer and Manchin announced an agreement on a massive bill titled the Inflation Reduction Act (IRA) — a slimmed-down version of the Build Back Better (BBB) bill Democrats had been negotiating since President Biden took office. The primary focus of the tax incentives in the bill was pitched by Democrats as “the single biggest climate investment in U.S. history” to put the United States “on a path to roughly 40% emissions reduction by 2030.”
Senator Manchin opposed the BBB but agreed to back the IRA with one condition — support by the President, Senator Schumer and Speaker Pelosi for a permitting reform bill. Senator Manchin knew passing such a bill separately would be difficult, so he also got an agreement to attach the bill to a must-pass piece of legislation by the end of the year.
The first bill was the continuing resolution to fund the federal government through December 16, 2022. But, an odd coalition of progressive Democrats and Senate Republicans formed to oppose the inclusion of the reform provisions as part of that legislation. The next opportunity will be to try including the language in one of the appropriation bills — most likely the Defense appropriations bill — which needs to be passed by Congress by the December 16 deadline in the continuing resolution.
The only bill that can survive a potential change in administration is one with bipartisan support. Legislators on both sides of the aisle have expressed a desire for permitting reform measures, but also opposition to terms set forth by the other party. Whether there’s enough common ground remains to be proven.
Where Does Senator Manchin’s Bill Go Now?
Senate Republicans opposed an initial term sheet, an early draft, and also the final version of Senator Manchin’s bill, which he called the “Energy Independence and Security Act of 2022.” However, just a few days before its release, Republican Senator Capito from West Virginia released language for her own permitting reform bill. Senator Capito’s bill was titled the “Simplify Timelines and Assure Regulatory Transparency Act’’ or the ‘‘START Act.”
The two bills have some areas of overlap, and following the withdrawal of Senator Manchin’s bill from the continuing resolution, Senator Capito expressed her desire to continue working on permitting reform, as did other Senate Republicans — including Senator Cornyn of Texas – another key oil and gas producing state. Neither bill is a cure-all for challenges experienced by oil and gas project developers, and Senator Manchin’s may do more for advancing the buildout of electric transmission needed to support the renewable generation incentivized by the Inflation Reduction Act. So, in the same way, an odd coalition initially opposed Senator Manchin’s bill, it’s also possible a similar bipartisan coalition may
be able to pass a version of the permitting reform this December.
What Provisions in the Two Bills May Generate Bipartisan Support?
NEPA Reform
Both bills include amendments to the National Environmental Policy Act (NEPA) — the statute which requires the preparation of either an Environmental Assessment (EA) or Environmental Impact Statement (EIS) for almost every major energy project. The bills overlap in their attempts to set time frames for the preparation of these assessments. Senator Capito’s version sets a strict limit of two years for all reviews, whereas Senator Manchin’s requires an average to be met, one year for EAs and two years for EISs. Both approaches have pros and cons, but there appears to be enough common ground to garner bipartisan support for NEPA reform.
Clean Water Act Reform
Senator Capito’s bill includes amendments to the Clean Water Act designed to codify as law a number of regulatory actions taken by the Trump administration in its last year in office. Senator Manchin’s bill has a far more limited set of reforms, essentially amending the law to incorporate interpretation of federal court decisions from around the country which are not applicable nationwide. However, this provision was struck due to the language that was added to the continuing resolution — before the entire bill was pulled. No official explanation for this exclusion was given, but it may indicate that even limited changes to the Clean Water Act will not be able to gain bipartisan support.
Judicial Review
Before he introduced his bill language, Senator Manchin released a term sheet identifying its intended components. One of those terms was for setting a “statute of limitations for court challenges,” but no such provision appeared in the final bill. However, Senator
Capito’s bill would require that any challenge to any energy project permit or approval be filed with the courts no later than sixty days after the decision. The absence of such a provision in Senator Manchin’s bill is problematic, but the fact it was included in his term sheet may mean it could be resurrected in a future bipartisan bill.
Expediting Completion of Mountain Valley Pipeline
Both bills included very similar provisions directing the completion of the Mountain Valley Pipeline project. Senator Manchin’s language was a bit more robust than Senator Capito’s, and so there’s reason to believe some version of this language will be able to gain bipartisan support.
Other Provisions
The two bills address a number of other aspects of permitting reform all of which may be problematic for one or the other party but may be essential for the bill to gain bipartisan support. In particular, Senator Manchin’s bill is lauded by some environmental groups and progressive Democrats because it would benefit the expansion of electric transmission — essential to a return on the investments for a renewable generation made by the Inflation Reduction Act. On the flip side, Senator Capito’s bill had a provision appealing exclusively to Republicans that would benefit the oil and gas exploration and production industries. Whether any or all of these measures have a chance of surviving in a bipartisan deal likely turns on how the overall balance is struck between favor of renewables and traditional energy sources.
Polarization is the Enemy of Progress
The Inflation Reduction Act was passed on party-line votes in both the Senate and the House. Almost immediately following, representatives and legislators on both sides of the aisle made it clear they had no intention of passing a subsequent bill to reform the permitting process. Progressive Democrats and environmental purists, ignoring the fact renewable projects have long been subject to regulatory and litigation delays, staunchly opposed any provisions supporting traditional energy infrastructure. Republican opposition appeared mostly to spite Senator Manchin’s support of the IRA, and because they believed his reforms were not sufficient to address the problems faced by the traditional energy industry.
Following the removal of Manchin’s language from the continuing resolution, Senator Schumer indicated he would attach it to the Defense appropriations bill expected to be approved in December. Senator Capito also noted she was willing to continue working on permitting reform in this Congress or the next, because “even if it’s a new Congress, and even if Republicans take over, we still need to have a bipartisan product here in the United States Senate.” But Senator Kramer (R-N.D.) offered an opposing and less optimistic perspective: he doubts Manchin could possibly alter the bill in a way that satisfies more Republicans and won’t put off more Democrats, “but of course, if we made it a bill that would really be useful, it’s hard to see how Democrats could ever support it.”
Decisions over the next three months will likely dictate the next two to ten years for commercial teams across the entire energy industry. For now, we wait on pins and needles.
About the author: Gary Kruse is Managing Director of Research for Arbo, an energy regulatory intelligence data, software and services provider to pipelines, producers, policy-makers, and trading houses. Gary is a foremost expert on the intersecting impact of regulatory, litigation and permitting complexities, and market dynamics on energy infrastructure development and operation. His unique ability to infuse data and quantitative analysis with context from economic, political, and market trends make his insights and viewpoints highly sought by executive, policy, and trading decision-makers seeking to confidently deploy capital, minimize risk, and maximize returns. Gary has decades of experience as an energy industry attorney, is a graduate of the University of Virginia School of Law, and received a Bachelor of Arts in Mathematics from the University of Dayton.
