08/18/2022 | News release | Distributed by Public on 08/18/2022 08:02
Among a host of other technologies, carbon capture and sequestration (CCS) - the act of capturing carbon dioxide (CO2) from emitting sources, liquefying the stream, and injecting the carbon dioxide into geologic strata such as saline layers far underground - will see a boost. The Inflation Reduction Act of 2022 (IRA) extends the available Section 45Q tax credit to any carbon capture, direct air capture, or carbon utilization project that begins construction before January 1, 2033, but more importantly, increases the value of those credits. The IRA seeks to jump-start wide-scale carbon sequestration projects from all industrial sectors, including fossil-fuel-fired power plants, large manufacturing facilities, and biofuels like biodiesel and ethanol.
Many scientists see CCS as a necessary technology to reduce greenhouse gas emissions and fight climate change. However, the high cost of site selection, technology development, and construction has limited its usefulness. Congress has attempted to jump start CCS deployment through numerous US Department of Energy grant programs and the use of the 45Q credit. However, to date, the costs and long development periods have limited the usefulness of the 45Q credit. The IRA's 45Q credit program revisions are expected to increase CCS deployment across multiple industrial sectors.
Prior to the IRA, 45Q tax credits were available only to sequestration or direct air capture facilities that began construction on or prior to December 31, 2025. The per ton tax credit was applied once operations began and continued for 12 years. Tax credit rates are set per ton of carbon dioxide captured and the amount depends on whether the carbon dioxide is captured for permanent geologic sequestration or the gas will be partially captured and utilized for enhanced oil recovery or a similar use.
As noted above, the IRA substantially expands and broadens the duration, eligibility, and availability of 45Q tax credits for future CCS projects. The most notable changes are:
The biofuels industry will benefit under the IRA not only from the availability of more lucrative tax incentives for CCS from biofuel production facilities (like ethanol plants), but also from the IRA's extension of several existing biofuel tax credits (including credits for biodiesel, renewable diesel, and second-generation biofuels). In addition, the IRA establishes a new tax credit for the development of sustainable aviation fuel (SAF). The credit will range from $1.25 to $1.75 per gallon depending on the extent of greenhouse gas reduction in the development of the SAF.
Companies seeking to avail themselves of the carbon and clean fuel tax credit benefits offered under the IRA are encouraged to carefully examine the legislation. ArentFox Schiff's Energy & Cleantech attorneys are well-experienced in carbon-capture and clean fuels matters and are available to assist in navigating the IRA.