The IRA and CCUS Development, Explained

In the wake of the IRA (Inflation Reduction Act), we at LandGate have been flooded with questions about how this act might affect different sectors of the energy economy. Due to the structure of the IRA, the impact of its passage will vary widely depending on the industry and development of CCUS, CCS, and carbon capture projects is no exception.

Previously, we discussed the impact of the IRA on solar development, now we discuss the unique ways in which the IRA will shape and affect CCUS efforts.

Want to learn more? Join us live February 16 as we discuss the finer points of CCUS development and the IRA

CCUS stands for Carbon Capture, Utilization and Storage. It refers to a number of different processes where CO2 (carbon dioxide) that is produced as part of energy generation or a waste product from industrial processes is then diverted from entering the atmosphere. It can also be directly removed from the atmosphere. This is the carbon capture part of CCUS and CCS (Carbon Capture & Storage).?

Once the carbon is captured, it can be dealt with in a number of ways. Storage involves pumping the CO2 into the ground, thus permanently removing it from the atmosphere. Utilization refers to a number of processes which use captured CO2 to avoid using other compounds. One such process is Enhanced Oil Recovery (EOR) which injects CO2 instead of water or other fluids into oil and gas wells to increase oil recovery, partially sequestering the carbon dioxide. Other examples of utilization may involve using CO2 as a feedstock to industrial processes that have been adapted to this purpose.

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What is the IRA?

The Inflation Reduction Act is a bill that introduces large scale changes to many sectors of the US economy, and has made some major changes to CCUS and the 45Q tax credit while providing more money and easier access to funds for processes that reduce carbon emissions. The impact of the IRA on energy markets extends far beyond its implications for CCUS and carbon capture practices,?

(click here if you want to learn more about the IRA as it relates to the solar development marketplace.)

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How has the IRA changed things for CCUS

US Code 45Q is the credit for carbon sequestration introduced in the 2008 tax code and is intended to provide tax incentives for CO2 storage, carbon capture efforts, CCUS, and more. The IRA provides for amendments to Code 45Q as it relates to CCUS.

• ?Increased Payments: The IRA increased the value of 45Q tax credits, providing a stronger financial incentive for storing carbon dioxide.
• 45Q incentives increase from $50 to $85/tonne for storage in saline geologic formations from carbon capture on industrial and power generation facilities.
• 45Q incentives increase from $35 to $60/tonne for utilization from industrial and power?generation carbon capture.
• 45Q incentives increase from $50 to $180/tonne for storage in saline geologic formations from DAC.
• 45Q incentives increase from $50 to $130/tonne for utilization from DAC.
• Lower Requirements: In order to qualify for 45Q tax credits, facilities have to meet certain requirements and emit a certain amount of carbon dioxide. The IRA has extended the number of facilities that would qualify for 45Q tax credits.?
• Power Generation facilities will now be eligible for credits if they emit 18,750 tonnes of CO2 per year, down from 500,000.?
• Industrial Facilities have decreased from 100,000 to 12,500 tonnes of CO2 emitted per year.?
• Direct Air Capture Facilities are now only required to capture 1,000 tonnes of CO2 each year, instead of 100,000 tonnes.?
• Extended Credit Availability: The credit is now able to be claimed for 12 years past the date of installation, and facilities that begin construction prior to 2033 are now retroactively eligible to receive the credit.
• Direct Repayment: Carbon capture project developers can now receive 45Q as a fully refundable direct payment as if it were an overpayment of taxes.?

For-profit, tax-paying entities can only realize the direct pay option for five years after the carbon capture equipment is placed in service. After which they will need to sell credits if the amount of credits exceeds their tax burden. Tax-exempt entities such as states, municipalities, Tribes, and cooperatives can realize the direct pay option for the full 12 years after the carbon capture equipment is placed in service.

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What is DAC?

Direct Air Capture is an industrial process that removes carbon dioxide from the atmosphere by passing air over a compound that binds carbon dioxide and removes it from the air. The CO2 can then be removed from that compound and stored for later use, or permanently sequestered in the ground. The compound can then be recycled and used to capture more CO2. LandGate’s CCUS PowerVal tool can account for the economics of using different CO2 sources.

What’s the difference between utilization and storage?

First, it is crucial for developers to distinguish between opportunities for CO2 utilization and opportunities for CO2 storage.?

Storage is permanent geologic sequestration. The carbon dioxide is pumped into underground reservoirs and monitored to avoid any emissions from the wells. The carbon dioxide has been removed from the atmosphere and from the carbon cycle.?

Utilization can mean different things. It can be utilized for Enhanced Oil Recovery (EOR), where it is pumped into the ground in order to improve oil and gas production in other wells. If CO2 is used as the injection fluid it can potentially be stored in the reservoirs, which can offset some of the hydrocarbon compounds being extracted. Or it can be used as a feedstock for industrial processes that need carbon. Current advances in concrete production are starting to use captured CO2 as part of the concrete production or curing process.?

LandGate’s PowerTools suite provides detailed data on all Class II and Class VI wells where CO2 is injected, as well as all facilities across the United States that utilize CO2.

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How do I find land appropriate for CCUS??

In order to manually locate land appropriate for CCUS, in-depth geologic surveys would need to be conducted followed by a manual search for current landowner information and cold calls.

Alternatively, LandGate’s CCUS PowerVal tool can evaluate any property across the United States within seconds for its CCUS potential, and then help connect you directly with the landowners willing to work with you.?

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LandGate is hosting a live webinar February 16 to discuss CCUS and the IRA?