Later this year, the IPCC Special Report on 1.5°C will be released and it is very likely to put great emphasis on the importance of carbon capture and storage (CCS) and the role that it needs to play in containing global emissions such that a net-zero emissions outcome can be achieved and within the time needed to limit average surface temperature warming to 1.5°C. This is not a surprise, given the similar story in the IPCC 5th Assessment Report in 2013 for a 2°C outcome. Yet despite the recognition of the role of CCS, the technology is not being deployed at the rate necessary to make a difference, not just to emissions, but also to the cost of the technology itself which will almost certainly fall as experience is gained, supporting infrastructure is built and innovation kicks in.
The Global Carbon Capture and Storage Institute (GCCSI) track CCS development and they note that only 17 CCS Facilities (>400kt CO2 per annum each) with a total capture capacity of approximately 30 MtpaCO2 are operating today. Just five new facilities are under construction.
Recently in The Guardian (Australian edition), an article appeared under the title “It’d be wonderful if the claims made about carbon capture were true”, which turned out to be more a critique of the coal industry than a deep criticism of CCS technology, but titles of that type don’t help the technology gain a true foothold. In a roundabout way, the author also reaches the conclusion that CCS is necessary, but deployment is far too slow.
Technology isn’t the issue holding up the deployment rate; that works just fine. CCS brings together a number of different technologies and processes that have been available in the oil and gas industry for decades and re-purposes them for CO2 capture and storage. Rather, the issue is the economics of doing this; unless there is a clear financial benefit for doing this, it won’t happen. To date that benefit has largely come through enhanced oil recovery (EOR), hence the number of blue coloured projects on the chart. But in a few cases, the benefit has come, at least in part, from a government implemented carbon pricing mechanism.
But a CCS white knight has now appeared on the horizon and it is potentially a game changer. The U.S. Congress has considerably expanded what was a modest and limited tax credit for CCS, into something meaningful that ought to accelerate deployment of the technology. On 9th February, Congress passed and the President signed into law a budget agreement that included language to expand a 2009 tax credit for CO2 capture and storage known as 45Q. The key provisions are that for stored CO2, the tax credit rises to $50 per tonne in 2027, while for use (EOR as well as other uses) the equivalent value is $35. The amounts will be adjusted for inflation after 2026.
The credit goes to the facility that captures the CO2 and is available for the first 12 years of operation. There is no cap on the arrangement for the tax credit for CCS facilities put into service after 2018 and for which construction has started before 2024 and eligibility is on a performance basis. In order for the capturing facility to receive the credit, certain monitoring and reporting rules apply to the use and storage of the CO2. Under the previous arrangements for 45Q, the tax credit expired after a total 75 million tonnes of CO2 were stored or used for EOR. The 2009 tax credit was $20 for storage and $10 for use. Besides increasing the amount of the credit and certainty regarding its availability, Congress also made the credit available for air capture and storage of CO2, a nascent technology (just the capture part) that may become a key tool for drawing down CO2 from the atmosphere later in the century.
As a result, the USA now has a $50 per tonne carbon pricing mechanism aimed directly at CCS and even more if removal of CO2 from the atmosphere is involved. While $50 per tonne of CO2 isn’t sufficient for every type of CCS project today, this amount could well be enough to unlock a wave of innovative projects, leading to new infrastructure, storage sites and technology improvements, giving birth to a real industry. Politics aside, this contribution from the United States could be the single most important step that any country takes in helping society reach the goal of the Paris Agreement.