US 45Q tax credit key to developing carbon-capture facility in Colorado

The US tax credit for carbon-capture projects will play a significant role in the development of a commercial-scale carbon-capture facility at a cement plant in Colorado announced this week.

A consortium including Total, LafargeHolcim and Oxy Low Carbon Ventures, a subsidiary of Occidental Petroleum, plan a joint study to assess the viability of building such a facility at LafargeHolcim's Portland plant, in Florence, Colorado.

The carbon-capture facility would capture up to 725,000 mt of CO2/year and sell it to Occidental for use in enhanced oil drilling.

"To make this project work, at the size we are doing, 45Q is a must," said Claude Letourneau, CEO of Svante, a Vancouver-based company whose carbon capture technology will be used at the proposed facility.

As the world grapples with satisfying increased energy demand but decreasing CO2 emissions, carbon capture and storage (CCS) is among the technologies touted as a way forward, though it is often derided for its significant capital costs.

Currently there are just two commercial-scale CCS facilities at power-producing facilities in North America: NRG Energy's Petra Nova plant outside Houston and SaskPower's Boundary Dam power station in Estevan, Saskatchewan.

ENHANCED OIL RECOVERY

Both facilities capture CO2 for enhanced oil recovery. The CO2 is pumped into oil wells, typically in older fields with declining production, and is permanently sequestered while squeezing out more oil.

Letourneau explained that the capital costs for existing CCS technology, which is largely liquid-based, are roughly $60/mt of CO2, whereas Svante's filter-based technology is roughly $50/mt.

The 45Q tax credit provides a $35/mt credit for CO2 stored through EOR. Letourneau said that with current CO2 prices around $20/mt, the economics for the proposed Colorado plant work.

Letourneau said coal plants have a greater concentration of CO2 in their flue gas (roughly 20%) but require significantly more capital costs due to scale.

For instance, Petra Nova, which processes the flue gas from just one of eight coal-fired units at NRG's W.A. Parish plant, captures roughly 1.8 million mt of CO2 annually.

Letourneau said investors, who benefit from the tax credit, are also wary of the long-term viability of coal generation in the US.

A smaller industrial facility, such as a cement plant, has a smaller percentage of CO2 in its flue gas (roughly 16%), but capital costs are lower and there is more optimism in the investment sector for long-term cement demand, Letourneau said.

"We can do this for about $150 million, so now the project is easier to finance, and we have a partner in Oxy to take the CO2," said Letourneau, who led the negotiations for the proposed plant. "I think we have a winning recipe now."

Letourneau said the project could be shovel-ready within 36 months.

45Q TO BRING CCS COSTS DOWN

Brad Crabtree, the vice president of carbon management at Great Plains Institute, as well as a director of the Carbon Capture Coalition, was among those who pushed Congress to amend and reform the 45Q credit in February 2018. The reform increased the carbon usage credit, which includes EOR, from $10/mt to $35/mt of CO2 and the storage credit from $20/mt to $50/mt.

"What we are seeing now is the same influence we've seen with the [Production Tax Credit] and the [Investment Tax Credit], when project developers, innovators and industry and their counterparts in the investing world know that a tax credit is viable, that they can count on it as a matter of law and the value is clear, it stimulates enormous amount of innovation," Crabtree said. "This leads to projects because they know the tax credit is there, and there is now a business model."

Just like wind and solar, carbon capture costs will come down because of the tax credit, Crabtree said, noting that carbon capture will be needed if the world wants to meet its emission reductions goals.

Crabtree pointed out that carbon capture is well established in the US industrial sector, in industries such as gasification and hydrogen production, and that the US industrial sector, excluding Petra Nova, captures roughly 25 million mt of CO2 annually.

But Crabtree is excited about the Colorado project because to his knowledge, it is the first commercial-scale project for a cement plant.

"Cement emissions are a significant percentage of global CO2 emissions, and there are ways to decarbonize inputs, but the bulk of emissions come from the chemistry of the process. ... This is really significant."