Strange bedfellows seek tax fix for sequestration projects

By Christa Marshall | 02/04/2016 07:25 AM EST

A coalition of fossil fuel companies and environmental groups are pushing for a legislative tax fix to boost carbon capture and sequestration projects.

A coalition of fossil fuel companies and environmental groups are pushing for a legislative tax fix to boost carbon capture and sequestration projects.

They say that the CCS industry is facing a looming expiration date, similar to the renewable industry’s dilemma last year before the extension of solar and wind tax credits.

In a letter sent to the U.S. House Committee on Ways and Means, a varied set of interests ranging from Peabody Energy Corp. to the Natural Resources Defense Council urge lawmakers to support a permanent extension of the federal Section 45Q tax credit for carbon dioxide sequestration.


Rep. Mike Conaway (R-Texas) is expected to introduce legislation with such a permanent extension in the coming weeks. There also are discussions for a new companion bill in the Senate, according to one supporter of the letter.

The 45Q provision currently awards a credit of $10 per ton of stored industrial carbon dioxide used in enhanced oil recovery projects and $20 per ton for carbon dioxide stored underground in deep rock reservoirs.

However, the program expires once 75 million tons of CO2 are stored, and about half of the available credits have been claimed by various industrial projects, according to the letter. For the CCS industry, the cap provides a disincentive for developers to start projects now, as they might not be able to claim the tax credit years later when CO2 capture and storage is operational at a given project.

"Due to long lead times for construction of such projects, the Section 45Q credit has, for practical purposes, already expired because the lack of financial certainty regarding future availability of credits deters private investment in new commercial CO2 capture projects," the letter says. The 20 signers include oil and gas companies like Occidental Petroleum Corp. and Arch Coal Inc., as well as entities like the Clean Air Task Force and Third Way.

Along with ending the 75-million-ton cap, Conaway’s bill is expected to increase the credit value for CO2 storage higher than $20 a ton.

"The diversity of coal companies, oil interests and environmental groups supporting these CCS incentives is remarkable and indicates likely deep bipartisan support in Congress when legislation is introduced," said Paul Bledsoe, a former Clinton White House energy and climate aide. "Given current low oil and natural [gas] prices, such financial incentives are absolutely critical to getting CCS more widely deployed and fulfilling its environmental and enhanced oil recovery promise."

The letter comes on the heels of several delays or cancellations of high-recognition projects. Yesterday, Southern Co. subsidiary Mississippi Power announced the under-construction Kemper coal plant — which would be the nation’s first large CCS project on a coal generator — would not be operational until the third quarter of the year (Greenwire, Feb. 3). The FutureGen Alliance also formally ended efforts to revive another large CCS project in Illinois last month after it lost earlier DOE financial support.

The challenges have prompted critics to say that federal and investor money would be better spent on renewable power and energy storage, among other things. However, CCS supporters note that coal- and gas-fired power plants still account for about 40 percent of the world’s CO2 emissions and that CO2 capture and storage is the only way to curb those emissions, particularly in countries with growing fossil fuel use.

The Section 45Q issue has been percolating in Congress for years, after business and environmental interests formed the National Enhanced Oil Recovery Initiative in 2012 to boost the CCS tax incentive (ClimateWire, Feb. 29, 2012). Sen. Heidi Heitkamp (D-N.D) and former Sen. Jay Rockefeller (D-W.Va.) supported legislation in 2014 that would expand the tax credit, for example.

Separately, several provisions supporting CCS moved through the Senate this week as amendments to a major energy package under consideration on the Senate floor, although they do not address 45Q.

One amendment from Heitkamp and several Democratic and Republican co-sponsors passed by voice vote. It calls for continued focus and investment on the technology and also urges DOE to produce a report to Congress on the "costs and benefits" of DOE entering into contracts to purchase CO2 at a guaranteed price from CCS projects.

Another passed amendment from Sen. John Barrasso (R-Wyo.) would expand DOE’s authority to award technology prizes to projects that separate carbon dioxide from dilute sources. It does not have a companion bill in the House, according to the senator’s office.