'Very weak guardrails' of expanded 45Q credits could lock-in fossil fuel power generation: researcher

Requirements surrounding the new carbon capture tax credits in the US Inflation Reduction Act need to be narrowed to prevent fossil fuel lock-in, although pathways for strengthening those requirements during the implementation phase of the IRA not yet clear, a University of Pittsburgh researcher said Nov. 29.

Speaking during the University of Texas' final Energy Symposium lecture of the year, Shanti Gamper-Rabindran expressed concern that because the 45Q enhancements in the IRA come with "very weak guardrails," carbon capture and sequestration incentives will flow too easily to gas-fired power applications rather than hard-to-abate sectors.

The IRA increased 45Q tax credits for industrial and power sectors from $50/mt CO2 captured and stored to $85/mt, and from $35/mt of CO2 to $60/mt for companies that use captured carbon for enhanced oil recovery or other uses. The act also lowered the threshold for tax credit eligibility so that projects capturing and storing at least 1,000 mt/year of CO2 are eligible for the credits.

According to the Joint Committee on Taxation, these enhancements will unleash $3.2 billion of government incentives to carbon capture projects over the next 10 years. If too large a portion of that total ends up going to CCS applications on gas or coal-fired power plants, the opportunity cost will be the decarbonization gains not made in other sectors, Gamper-Rabindran said. And if taxpayer-funded incentives are favorably subsidizing carbon capture additions on gas or coal-fired power plants, that could lock-in fossil fuel sources rather than steering power generators towards renewable sources.

"Let's say that the law is written so widely that there is a lot of CCS being installed on power plants and very little is actually going to hard-to-abate sectors," Gamper-Rabindran said. "What does the taxpayer learn after 10 years? That we've not achieved much with that $3.2 billion. I don't think there will be a lot of appetite from taxpayers to fund more deployment."

An example of this overbroad wording in the 45Q component of the IRA can be found in Section 13104, which states that power plants are eligible for the tax credits if their carbon capture systems have a "capture design capacity of not less than 75% of the baseline."

"Instead of the legislation saying 'systems that are designed to capture [75%],' it could have said, 'systems that actually capture [75%]'," Gamper-Rabindran said. "That would have been a much narrower definition that would ensure we give money to CCS that has a higher probability of success."

The language of the IRA, passed by Congress and signed by President Joe Biden earlier this year, is already set in stone. Finding ways to focus the deployment of carbon capture incentives during the law's implementation phase is still a puzzle to be solved.

"I don't have the answer yet," Gamper-Rabindran said. "I've been emailing everyone I can think of to get this answer – to figure out if we can actually narrow at least at the implementation level, because it's already passed."