The Inflation Reduction Act is a Carbon Capture Bonanza

Thanks to Senator Joe Manchin (D., W. Va.), there isn’t much in the way of consequences for big CO2 emitters in Democrats’ new climate bill. However, there is a huge reward for large-emitting businesses to send their greenhouse gasses underground. There’s also a lot of money for facilities that plan to take the emissions out directly. These provisions make it possible for investors, legacy oil companies and startups to propose that they provide this service. “We’re definitely going from a curiosity to a priority,” says Steve Lowenthal, chief commercial officer of Frontier Carbon Solutions, a carbon capture startup. “This changes the game.”

The Inflation Reduction Act, which passed the Senate on Monday and is poised to pass the House on Friday, includes a dramatic change in a crucial tax credit for the carbon capture industry—increasing the government subsidy for capturing CO2 from polluting sources from $50 to $85 per metric ton. Developers say that raising that incentive could tip many projects that once weren’t worth the investment over the financial finish line. New legislation simplifies tax credit eligibility and provides a subsidy for small carbon capture projects. This essentially meets the industry’s demand for more carbon capture legislation.

“The fact that [the legislation] actually happened isn’t a big surprise,” says Adrian Corless, CEO of CarbonCapture, a direct air capture startup. “The fact that it actually came out in such a good form and actually came out [so soon] is much better than we expected.”

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The 45Q tax incentive was once a limited-time offer that only allowed investors to finance carbon capture projects. This included pipelines for capturing CO2 from ethanol processing plants. These facilities emit very little CO2 because they are tanks in which corn is fermented to fuel. While emissions from industrial plants are a major contributor to climate change, the gas that is actually emitted from them contains much less CO2. For example, coal plant emissions contain about 13% of the CO2 while ethanol processing facilities emit almost pure CO2. It’s also much more costly to collect it underground and separate it from other gases.

However, raising the price of carbon dioxide capture from low-CO2 industrial facilities to $85/ton could make them financially viable. “It really can’t be [overstated]How meaningful is 85 [dollars per ton] is to the industry at large,” says Lowenthal.

This package provides a lot of government support for an industry that proposes to eliminate carbon dioxide from the atmosphere directly. It also increases tax credits to reduce CO2 emissions to $180 per tonne. “It’s going to make it easy for us to raise the capital to build the project earlier and to build it faster,” says Corless

Massive Industry Boost

The new bill comes on top of last year’s infrastructure law, which doled out a huge helping of government support for the sector, including $100 million for the Department of Energy to design pipelines to transport compressed CO2 emissions to underground storage sites, $2.1 billion in loans and grants for the private sector to build the pipelines, and $3.5 billion to construct four “hub” facilities to remove carbon dioxide from the atmosphere (although together those facilities will be able to sequester less than 0.1% of the CO2 the U.S. emits each year).

The measures taken together could allow the industry to grow 13 times by 2035 according the Carbon Capture Coalition. This industry group represents startups as well as oil giants such Shell. “Together with the historic investments made in the Bipartisan Infrastructure Law, this package would provide the most transformative and far-reaching policy support in the world for the economywide deployment of carbon management technologies,” wrote the coalition’s external affairs manager Madelyn Morrison in a July 28 press release.

The changes were also welcomed by Shell Oil, an oil company that has long considered carbon capture a growth opportunity. “We see the Inflation Reduction Act’s carbon capture-related provisions as key to developing projects that will help reduce emissions in critical industrial sectors,” the company’s media representatives said in a statement to TIME.

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The international players are also taking note. “It will establish the United States as the place to be to deploy such technologies,” says Christoph Gebald, co-founder of Swiss direct air carbon capture company Climeworks, which opened the first commercial CO2 removal plant in Iceland last year. “And I am very convinced that this will also kick off a spiral of action from investors.”

The Environmentalists are still skeptical

Not everyone sees the industry’s likely expansion as a good thing. Despite years of promises by emitters, carbon capture technology has not been able to scale up rapidly. Many failed projects were costly, and others were never able achieve their emissions reductions when they took into account the high energy cost to run the carbon capture technology. Although carbon capture funding tends to be supported by both parties, many environmentalists view it as an expensive distraction from the urgently required emissions cuts. They also see the technology as an opportunity to make new revenues for oil companies.

That’s especially true of a controversial provision in the tax code that gives incentives to companies that pump the captured carbon underground in order to extract more oil, rather than just to permanently store it. (The new climate bill raises the government’s reward for this so-called “enhanced oil recovery” to $60 per ton.)

However, most environmentalists believe that there will be some carbon capture needed to decarbonize difficult-to-abate industry like cement production. Also, that in order for us to reach net-zero emissions targets, we need to expand atmospheric carbon removal technology. But those efforts also won’t do much if they’re not also accompanied by dramatic emissions cuts across society.

Jim Walsh from Food and Water Watch is the policy director. He believes the legislation relies too much on carbon capture. A popular emissions analysis of the legislation from Princeton University’s REPEAT Project counts on companies to quickly scale up carbon capture projects that promise to deliver a fifth of total U.S. emissions cuts by 2030, even though the technology hasn’t been able to achieve significant climate benefits in the past. “The Inflation Reduction Act does not deliver mandates to cut pollution. It creates incentives that may drive up private investment, and it delivers billions to fossil fuel corporations based on the notion that their climate pollution can be somehow captured,” he wrote in an Aug. 11 statement. “This is a dangerous bet.”

Fighting for Local Battles

Proposed industry expansions and the incentives they offer are sure to cause local controversy. Iowa’s plans for massive new carbon dioxide pipelines have been a hot topic in the last year. Investors and pro-carbon capture governorships have been fighting landowners and activists over plans to build huge pipelines to transport carbon from the ethanol plants. Proponents of the pipelines say they will make a serious dent in Iowa’s greenhouse gas emissions and help benefit farmers who grow corn that serves as a feedstock in the state’s ethanol industry. Opponents of the pipelines, which include local environmentalists group, claim that they put Iowans at high risk from CO2 emissions and help support an old, polluting ethanol business while affecting local farmers, who will need to let developers build on their land.

Summit Carbon Solutions was the developer of the pipeline. Last week, the state regulators were informed by Summit Carbon Solutions that the company would be filing for eminent title to obtain control over the private land.

“Summit showed their true colors today,” wrote Food & Water Watch organizer Emma Schmit in an Aug. 5 press release. “Summit may seek eminent domain but [it] is our public institutions, accountable to the people, that will be responsible for the final decision.”

The genesis of Summit’s project goes back to a 2018 change in the 45Q tax credit, which raised the payment from about $24 per ton to $50, giving the developers an economic incentive to start building the pipeline. Summit executives told TIME that they might consider building more pipelines in order to reduce emissions from further-flung ethanol plant sites. That would seem likely to throw even more fuel on the fire in Iowa—potentially the first of many such clashes as federal funding helps the industry scale up in the years ahead.

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