May 05 2014
Senator introduces legislation to spur research and development, create tax credits to support CCS initiatives
WASHINGTON, D.C. – Charting a broader path for the future of West Virginia coal—while recognizing the need to limit greenhouse gas emissions—Senator Jay Rockefeller today unveiled a major initiative to advance the commercial deployment of clean coal technologies.
The two bills introduced by Rockefeller today— the Carbon Capture and Sequestration Deployment Act of 2014 and the Expanding Carbon Capture through Enhanced Oil Recovery Act of 2014—would invest in federal carbon capture and sequestration (CCS) research and development; expand tax credits for innovative companies investing in CCS technologies; create loan guarantees for construction of new CCS facilities and retrofits of existing facilities that utilize CCS, among other provisions.
“The reality for West Virginia and the rest of the country is that we need coal; we can’t meet our energy needs without it,” Rockefeller said. “It is simply unrealistic to think that we can stop burning coal and shift to cleaner sources of energy instantly. And it is equally unrealistic to think that coal is as clean as it could be, or that it will be around forever. Either way, we have to prepare for the future.
“Innovation is at the very heart of the American ideal,” Rockefeller added. “We’re a country that dreams big dreams. We put a man on the moon. We cured polio. At every turn, when faced with a challenge, we’ve overcome it.
“Today, West Virginia is facing one of its biggest challenges: how do we continue to support one of our bedrock industries, while protecting our clean air and water for future generations? The bills I introduced today are designed to create an environment where we can succeed in meeting that challenge. And I know we have the commitment and capacity to succeed.”
The Carbon Capture and Sequestration Deployment Act of 2014 seeks to facilitate the development and commercial deployment of Carbon Capture and Sequestration (CCS) technologies. Its provisions include:
Carbon Capture & Sequestration Innovation Program
This bill would authorize $1 billion over 15 years for a cooperative industry-government research and development program in the Department of Energy’s (DOE) Office of Fossil Energy. The goal of this program is to demonstrate novel and innovative technologies to capture, use, or store carbon dioxide. Industry partners would be required to match up to 20% of the government’s investment. This type of program would be in addition to the DOE’s existing research programs, including those implemented by the National Energy Technology Laboratory (NETL). The bill would also require an annual DOE report to assess the fossil energy program and the current state of CCS deployment, and make recommendations to speed deployment. The title would also require a Government Accountability Office review of DOE’s efforts.
Modification to the Carbon Dioxide Sequestration Credit (45Q)
Section 45Q of the Internal Revenue Code provides a tax credit for each metric ton of qualified carbon dioxide that is captured and sequestered. Because the credit is capped and available on a first come - first served basis, businesses are unable to take the credit into consideration in their financing structure because they cannot guarantee that it will still be available to them when their project is placed in service. This bill would amend current law by allowing projects to apply for a guaranteed allocation of credits for future use. It would also limit the amount of credits any given project can receive so that multiple projects will have an opportunity to receive credits. Finally, it would allow the credit to be transferred to the company responsible for storing the CO2 if the taxpayer elects to do so.
Carbon Capture & Sequestration Tax Credits and Loan Guarantees
This bill would authorize $20 billion in loan guarantees to be used for the construction of new commercial-scale electric generation units or industrial facilities utilizing CCS technology; the retrofit of existing commercial-scale electric generation units or industrial facilities utilizing CCS technology; and the construction of CO2 transmission pipelines. Furthermore, it would create a new investment tax credit to cover up to 30% of the incremental cost of CCS equipment. The bill would set a baseline capture rate of at least 65% to qualify for the credit. Facilities that reached the baseline capture rate of 65% would receive a credit of 15% of their costs. In order to incentivize improvements in technologies and capture rates, projects that capture above the baseline would receive a higher credit rate the more CO2 they planned to capture. The maximum credit would be 30% for capturing 100% of CO2 emissions.
The Expanding Carbon Capture through Enhanced Oil Recovery Act of 2014 is an innovative approach to providing tax credits for CCS deployment. It expands and reforms the existing Section 45Q Tax Credit for Carbon Sequestration to advance capture technology through the greater use of carbon dioxide enhanced oil recovery (CO2-EOR) in the United States. A decades-old, proven commercial practice, CO2-EOR involves injecting CO2 into already developed oil fields to coax additional production. According to the National Energy Technology Laboratory (NETL), increasing the supply of CO2 captured from man-made sources has the potential to increase American oil production by tens of billions of barrels, while safely storing billions of tons of CO2 underground. Its provisions include:
Expanding the 45Q Tax Credit
The growth of the CO2-EOR industry depends upon capturing substantially more CO2 from man-made sources. Authorized to only provide tax credits for 75 million tons of CO2, the existing 45Q program is insufficient to take advantage of CO2-EOR’s potential. Already, tax credits have been claimed for 21 million tons, and the remaining pool of tax credits likely will be exhausted in the next several years. A 45Q expansion will enable the development of numerous CO2 capture projects and supply the EOR industry with necessary CO2.
Reforming the 45Q Tax Credit
To increase certainty for CO2 capture project developers, the bill also will introduce certain reforms for allocating these new 45Q credits. A certification process will allow CO2 capture projects to reserve these newly-created 45Q tax credits and ensure that projects move forward toward construction and completion in a timely manner. Reserving 45Q tax credits for future use will help CO2 capture projects in obtaining private sector investment.
Additional reforms include scheduling periodic reviews of this 45Q program and providing authority to the Secretary of the Treasury to ensure that new tax credits will be revenue positive to the federal government over time when taking into account the revenue produced from increased oil recovery resulting from the credit as compared to the revenue loss from credits being claimed.
According to the National Enhanced Oil Recovery Initiative’s analysis, new 45Q credits allocated over ten years would generate more than 8 billion barrels of oil, while storing 4 billion tons of CO2 over 40 years.