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A rendering of the proposed direct air capture plant Occidental Petroleum wants to build in the Permian Basin, to be engineered by Carbon Engineering and 1PointFive. Final rules for the 45Q tax credit for carbon capture projects just released by the IRS could pave the way for new projects in the Permian Basin and elsewhere.
lessPhoto: Carbon EngineeringA rendering of the proposed direct air capture plant Occidental Petroleum wants to build in the Permian Basin, to be engineered by Carbon Engineering and 1PointFive. Final rules for the 45Q tax credit for
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A rendering of the proposed direct air capture plant Occidental Petroleum wants to build in the Permian Basin, to be engineered by Carbon Engineering and 1PointFive. Final rules for the 45Q tax credit for carbon capture projects just released by the IRS could pave the way for new projects in the Permian Basin and elsewhere.
lessA rendering of the proposed direct air capture plant Occidental Petroleum wants to build in the Permian Basin, to be engineered by Carbon Engineering and 1PointFive. Final rules for the 45Q tax credit for
... moreAfter several years of waiting, the Internal Revenue Service has issued final rules to implement the Section 45Q tax credit designed to spur development of carbon capture projects.
“I thought the IRS did a fair, reasonable job,” commented Midlander Steve Melzer of Melzer Consulting and director of the CO2 Conference.
Providing certainty about what will qualify for the credit and a timeline for when project construction can begin could pave the way for some projects in the Permian Basin. He said they were too early in the planning stages to be discussed but could be very large.
A lot of people are looking at the Permian Basin as a wonderful place for not just for carbon dioxide-based enhanced oil recovery but carbon sequestration as well, he told the Reporter-Telegram by telephone. With its bounty of infrastructure and reservoirs capable of holding massive amounts of CO2, “if we filled those reservoirs, it would be a huge industry with a lot of jobs,” he said, with engineers and geologists among the positions to be filled.
Developing the Permian Basin’s CO2 capture, utilization and storage capabilities also could help address the issue of emissions along the Gulf Coast, where there is an urgent need for action, Melzer added.
He expressed confidence the efforts to advance carbon capture, utilization and storage will continue to thrive under the new Biden Administration, given its expected focus on the climate. Updating 45Q credits had bipartisan support, Melzer noted, and “Nowhere on his platform did I see anything to the contrary. There is a wing on the left that wants to ‘keep it in the ground’ and implement the Green New Deal and he’s come out as not in favor of that.”
Melzer said those at the IRS reviewing the proposed rules did a good job of crafting them so they would support development, a position echoed by the Carbon Capture Coalition.
Brad Crabtree, director of the coalition, which is comprised of 80-plus companies, unions and non-governmental organizations, said the coalition had helped build a consensus among its members and made recommendations to the Department of the Treasury on 45Q updates.
“The Carbon Capture Coalition welcomes the release of final rules to implement the reformed 45Q tax credit,” Crabtree said in a statement. “The final rule will provide long overdue regulatory and financial certainty to incentivize private investment in economy-wide deployment of carbon capture, removal, transport, use and geologic storage across a range of key industries. The final rule, coupled with the two-year extension of 45Q passed in December as part of the 2020 omnibus spending package, will help to unlock billions of dollars in private capital to continue moving forward on the approximately 30 publicly identified commercial carbon capture projects already under development nationwide in response to the revamped tax credit.”
The IRS’ final rule:
-- Reaffirms strong standards for demonstrating secure geologic storage to claim the 45Q tax credit (the IRS rejected requests to weaken requirements that would have undermined the integrity of the program);
-- Reduces the lookback period for credit recapture from five years to three, which will safeguard the geologic storage objectives of the 45Q program while addressing the open-ended risk of credit recapture that could otherwise impede private investment in carbon capture projects;
-- Provides for a flexible approach to aggregating smaller industrial facilities into a single project to qualify for 45Q, significantly expanding opportunities for project deployment and emissions reductions in multiple industries and regions of the country; and
-- Encourages innovation in carbon utilization by affirming that a wide range of products manufactured from captured carbon are eligible for the tax credit, subject to requirements for lifecycle analysis of greenhouse emissions.
Going forward, Crabtree said the coalition will work with policymakers to enhance public transparency in demonstrating secure geologic storage in order to claim the tax credit. A second priority will be direct pay in lieu of the tax credit, which he said will enable developers to attract private capital finance existing projects and develop new ones.