Why do we need carbon capture? According to international and domestic climate authorities, substantial deployment of carbon capture technologies is required to meet global emissions reduction objectives in the electric power and industrial sectors where fossil fuels will continue to be utilized. CCUS is also necessary to produce low-carbon fuels and will help to maintain and create good-paying jobs.
How do we deploy carbon capture? The Section 45Q tax credit is a game-changing policy that led to the announcement of over 30 carbon capture projects, but further deployment incentives - similar to those that commercialized wind and solar technologies - are required to build a viable carbon capture industry in the wake of the COVID-19 pandemic.
Carbon capture is an ecosystem of several distinct processes, all of which are critical to reduce emissions. Capturing CO2 in only one part of the carbon, capture, utilization, and storage (CCUS) equation. Robust policy support is required to enable the entire CCUS ecosystem, including CO2 transport and storage, in order to unlock the substantial environmental benefits that carbon capture can provide.
Any policy designed to reduce emissions of greenhouse gases must recognize the need for CCUS. Policies must also ensure energy consumers continue to have access to secure, low-cost, and accessible – or dispatchable in the case of electricity generation – forms of energy, and be accompanied by a robust and complementary set of incentives to develop and deploy cost-effective CCUS technologies, a clear and harmonized set of requirements and incentives to facilitate pipeline transportation of captured CO2 and the infrastructure needed to support carbon capture, transport and storage, and increased and continued support for CO2 storage and the study of post CO2 injection and monitoring in geologic formations.
Electric Power Sector Decarbonization with CCUS
Over 60% of global CO2 emissions come from point sources that utilize fossil fuels – 40% of that is from the power sector. IEA projects electricity demand to nearly triple by 2070 - equivalent to adding the Chinese grid every eight years - driven by economic growth, electrification and increased access to electricity in developing economies. One of the defining challenges to achieve stabilization is to reduce CO2 emissions from existing energy assets. Power stations and industrial plants are built to last for decades. Retrofitting existing plants with CO2 capture and storing the CO2 will address this challenge. IEA’s modeling projects 190 GW of coal-fired capacity, mainly in China, and 160 GW of gas-fired capacity, is retrofitted with CCUS by 2050. To put this into perspective, this amount of coal-fired capacity is equal to nearly four hundred 500 MW coal-fired power plants. IEA’s modeling shows that globally, retrofits on existing plants account for one-third of all the CO2 captured from power plants. Moreover, CCUS helps to meets a growing need for system flexibility and low-carbon dispatchable energy resources as more variable, intermittent renewable generation comes online. The ability to have dispatchable power over long periods of time will be necessary to balance all of the intermittent resources on the grid.
Clean Hydrogen Produced with CCUS Enables Net-Zero Objectives
- “Clean” – meaning low or net-zero carbon hydrogen, offers a pathway to decarbonize a range of sectors, including transportation, electric power, chemical production, and heavy industry.
- CCUS coupled with fossil fuels is a critical pathway to produce and scale clean hydrogen.
- Net-negative carbon hydrogen can also be produced when co-firing fossil fuels with biomass.
- Clean hydrogen produced with CCUS is less expensive than using renewable energy to produce hydrogen through electrolysis today, and is projected to remain the cheapest pathway domestically, with abundant, low-cost domestic natural gas and available CO2 storage.
- IEA projects that hydrogen production with CCUS will account for 3.5% of cumulative emissions reductions necessary to achieve its Sustainable Development Scenario, and will account for nearly 50% of global hydrogen production by 2050.
Carbon Dioxide Pipeline Infrastructure
Interconnected CO2 transport systems that collect CO2 from multiple capture sources and deliver it to geologic CO2 storage sites are the key backbone infrastructure needed for widespread carbon capture deployment at the scale required for CCUS to contribute to global emissions reductions necessary to achieve the 2° or below 2° objective.
There will be a need for new infrastructure to transport CO2 from source to sink to enable significant CCUS deployment.
- Unfortunately, infrastructure build-out faces a “chicken-and-egg” problem. Sufficient CO2 transport infrastructure must be in place in order to commit to CO2 capture projects, but CO2 capture projects must also be certain in order to commit to CO2 transport infrastructure build-out. Policy support is required to overcome this barrier.
- The U.S. currently has 50 existing CO2 pipelines totaling 4,500 miles. The National Academies projects the need for as much as 12,000 miles of CO2 pipelines by 2030 to facilitate the installation of CCUS at scale. While 12,000 miles of pipelines may seem daunting, the map on the right below shows the existing natural gas pipeline network in the U.S., which totals over 3 million miles. CO2 pipeline infrastructure can be built in many existing rights-of-way for these or other pipeline infrastructure that exists throughout the country.
- CO2 transport infrastructure should be developed with excess capacity to accommodate future CCUS deployment, but initial CO2 capture projects cannot bear the cost of that infrastructure alone.
Large-Scale Carbon Dioxide Storage: The Key to Significant Emissions Reductions
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Large-scale geologic storage of carbon dioxide underpins the entire CCUS ecosystem. Without it, the emissions reduction benefits of carbon capture – including carbon removal technologies like direct air capture and bioenergy with carbon capture and storage – will not be realized.
The U.S. has the world’s largest volume of well-documented, studied, and tested geologic reservoirs for storing large volumes of CO2 , and much of that storage capacity is located near major existing sources of CO2 .
- DOE’s Carbon Storage Assurance Facility Enterprise (CarbonSAFE) Initiative is helping advance large-scale carbon storage resources through development of integrated storage complexes that will characterize, monitor, and develop the data necessary for storage sites will have high storage capacity potential in excess of 50 million metric tons of CO2 over 30 years per storage site.
- Five projects have been selected for Phase III of the program, but additional funding support is required to move additional projects through to Phase IV and create the largescale CO2 storage capacity necessary to meet emissions reduction objectives.
- Additional policy support is required to expand regional geological characterization, collect and analyze data, address regional monitoring, permitting, and policy challenges, and assure environmental integrity in storage projects.
HOW DO WE DEPLOY CARBON CAPTURE?
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45Q Has Made an Impact, But Additional Support is Needed
Since the Section 45Q tax credit was revised in 2018, over 30 new CCUS projects have been announced. However – and unfortunately - the COVID-19 pandemic has increased uncertainty in financial markets by reducing tax liability and limiting the appetite for private investment in first-of-a-kind, capital-intensive projects. Moreover, CCUS projects must compete with existing funds in the tax equity market going into wind and solar tax equity deals. This has made it difficult for CCUS project developers to secure the tax equity partnerships that are necessary to deploy projects. To overcome this barrier, Congress can promote CCUS deployment by implementing a direct payment mechanism for the Section 45Q tax credit. Doing so would:
- Allow non-taxpaying entities like rural electric cooperatives and public utilities – several of which are already developing CCUS projects - to access the tax credit
- Avoiding the tax equity markets means the full value of the tax credits are directly applied to CCUS projects as opposed to tax equity firms taking 30% of the tax credit value.
- Opens up access to domestic and international private sector investment capital.
Similar policy support following the 2008-2009 economic recession helped to commercialize the wind and solar energy industries that exist today. CCUS – an emerging technology at an equivalent point in the commercialization timeline as wind and solar were just over a decade ago – would benefit similarly from direct pay.
Additional certainty can be provided for CCUS project developers and investors by extending the commence construction window under the 45Q tax credit program and offsetting the Base Erosion Anti-Abuse Tax (BEAT), which can cause CCUS projects to lose some or all of the value of the credit.