Bipartisan Carbon Capture Parity Act Proposes Tax Credit Increase

The Whitehouse Introduces The Carbon Capture And Utilization Parity Act Of 2023 - Carbon Herald
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US Senators Sheldon Whitehouse (D-RI) and Bill Cassidy (R-LA) introduced on Feb 28th the Captured Carbon Utilization Parity Act – a bill that removes the gap between the credit value for carbon capture and utilization, and carbon capture and sequestration in the 45Q carbon capture tax credit.

The bill increases the amount of funds available for projects developing direct air capture and permanent sequestration, as well as those involved in point source carbon capture in the US. It also would put the two types of projects on equal footing, as carbon dioxide removal projects were slated to receive more that those who are focused only on capturing it.

Relevant: What is The 45Q Tax Credit?

An important change in the proposed act is that the tax credit will be equal for projects that capture CO2 and use it for enhanced oil recovery, a practice whose emission reduction value has been questioned.

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It increases the tax credit for carbon capture and utilization to match the incentives for carbon capture and sequestration for both direct air capture and the power and industrial sectors.

Under the 45Q credit, projects currently receive $85/t CO2 for carbon capture and geologic storage (CCS) and $60/t CO2 for carbon capture and storage via utilization (CCUS) including enhanced oil recovery (EOR). 

In 2018, the 45Q tax credit was updated to include direct air capture (DAC) projects for the first time. According to the update, direct air capture facilities can receive $180/t for geologically sequestered CO2 and $130/t for captured CO2 and used in EOR or utilized.

Relevant: 45Q Carbon Capture Credit Raised To $85 From $50

The introduced Carbon Capture and Utilization Parity Act includes the following changes:

  • An increase in the value for direct air capture and utilization to $180/metric ton from $130/t.
  • An increase in the value for power and industrial sector capture and utilization to $85/metric ton from $60/t.

According to the announcement, the legislation’s goal is to: 

  • Support industry investment in carbon-neutral products.
  • Support utilizing captured carbon in the manufacturing of products to lower the emission intensity of production.
  • Contribute to emissions reductions and a circular economy.
  • Establish parity for utilization that will further incentivize the deployment and innovation of carbon capture technology and low/zero-carbon products.
  • Reduce current annual global CO2 emissions by up to 10%, and address the industrial sector emissions that account for 24% of the US carbon footprint. 
  • Promote a circular economy by keeping materials in circulation for as long as possible.
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The introduced bill supports substantially direct air capture projects that are free to use the captured emissions for enhanced oil recovery. The tax credit amount of $180 per ton of CO2 captured and utilized is equal to the tax credit given for CO2 captured and permanently eliminated.

The changes send the message that industry is as incentivized to actually reduce emissions – known as achieving а carbon negative impact – as it is to make no difference in emissions levels (which results from CO2 utilization), known as having а carbon neutral impact. 

The act even includes $180 per ton of CO2 for direct air capture and utilization for enhanced oil recovery which is not scientifically proven to have a neutral impact on emissions levels, or if it leads to an overall increase of carbon emissions in the atmosphere. 

Needless to say, direct air capture projects that achieve net emissions reductions are more urgent and need to be prioritized ahead of carbon capture and utilization projects in a world that is serious about achieving the Paris Agreement goal of limiting global warming to 1.5 °C above pre-industrial levels.

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