Carbon America CEO: The Inflation Reduction Act Is A Game Changer For The Industry

Carbon America CEO: The Inflation Reduction Act Is A Game Changer For The Industry - Carbon Herald
Brent Lewis, Carbon America CEO

Interview originally published on October 7, 2022.

The carbon capture and storage industry (CCS) has been seeing unprecedented interest in the wake of the Inflation Reduction Act which created new mechanisms to bolster the industry, while turbocharging already existing ones. This has generated an influx of new projects and investment but what will the impact be for companies already working in this area like Carbon America?

We sat down with Carbon America CEO Brent Lewis to discuss the company’s new ethanol carbon capture project with Bridgeport Ethanol in Nebraska (the first in the state using this technology) and how he thinks the Inflation Reduction Act will impact the CCS industry.

This interview has been edited for clarity and length.

What is your reaction to the Inflation Reduction Act (IRA)? It feels like a big shift for the burgeoning carbon capture and storage (CCS) industry.

It’s a game changer for the industry. We believe that a lot of a lot of key elements of the IRA are going to drive a much larger total addressable market in the US. We can now move beyond some of the easiest to abate industries like ethanol and natural gas processing plants, and we can start tackling the carbon dioxide emissions from flue gas power plants and others.

I think the market has gotten much bigger and part of it has to do with the increase in the value of the 45Q for permanent sequestration going from $50 to now at $85 per ton captured and sequestered. That’s a material change in the revenues for a CCS project. We’re seeing a lot more opportunity there for projects to really be economic with currently available technologies.

Are there specific aspects of the IRA that will help develop the market for CCS?

Yes, another thing about the IRA, that is especially beneficial when you’re talking about creating a very large market, is the direct pay. Direct pay provides the ability for the project owner to file their tax return, and the IRS effectively pays the cash value of the 45Q tax credit in the following year. Now there are ways you can structure a transaction to monetize the future value of those credits. Instead of having to rely on tax equity, to help pay for these projects, the IRS will basically pay and then the project can borrow against that future stream.

Another thing that’s important to note is the “start of CCS construction” runway now is extended to 2033, versus the old rules that required CCS projects to start construction by 2026. This changes everything because CCS project developers can implement long-term planning into their development strategy. And what that should allow for CCS project cost compression between now and then. As more and more projects get successfully completed, the cost of capital and cost to build should both decrease.

Is your risk tolerance higher now? Are you looking at taking on bigger, more complex projects?

I think we are reasonably risk tolerant, because to participate fully in CCS projects and get CO2 in the ground as fast as possible, you really want to move quickly. The challenge for CCS is that there are three assets you have to develop and construct in parallel. You have to develop a CO2 capture plant, a transportation system, and then the sequestration site. And each of those are complex in their own right and follow their own timeline. The biggest risk in pulling together project financing for a CCS project is waiting for the permit to get approved for the sequestration.

[Compare that with a] wind project. There is a development period, you work to get your permit, offtake, interconnection, and EPC agreements. [After] a “notice to proceed”, that’s when you start getting your construction financing. The only limited risk there will be the construction schedule and cost overruns because all the contracts are in place. That way you can borrow at cheap levels because the risks are contained.

Several days ago, Carbon America announced the launch of a project with Bridgeport Ethanol, can you tell us more about this first carbon capture project in Nebraska?

We’re really excited about the Bridgeport project. There’s excellent geology near its ethanol plant in northwest Nebraska. It’s not that far from the other projects that we’re working on in Colorado the Sterling and Yuma projects. We estimate that the amount of carbon dioxide being emitted from the fermenter plant at the Bridgeport ethanol facility is about 175,000 tonnes a year and we’re working to capture about 95% of that CO2 stream.

Bridgeport Ethanol plant in Nebraska. Image: Bridgeport Ethanol, LLC

For that we’re really using just proven CO2 capture technologies. Capturing CO2 from this type of emissions stream is pretty straight forward, because it’s almost pure carbon dioxide coming out of the emitter (a fermenter). Then it’s compression and dehydration and getting it pipeline ready. It’s just compressing to pipeline grade and then pumping down the pipeline which is only about 10 miles long.

When do you expect the plant to become operational?

It should be fully operational by the end of 2024. We’re going to be assertively developing and building out the project while we’re seeing the Class VI permit wend its way through the EPA. We’re not going to wait to start the project until we get the permit. We’re going to be working in parallel, which is a little bit risky, but that’s what you have to do to get these things built as quickly and as thoughtfully as possible.

We’ve been highly engaged with the EPA already. We’re working with them on our plan and our permit application. We’re trying to anticipate everything that they’re going to be looking for, so that we’re delivering a complete package when see the permit application submission next year.

Do you expect permits to become easier to obtain, will there be less red tape?

I would say not yet. In fact, it’s going to become more difficult, [but] not because the standards are harder to clear. We anticipate that more projects will be going through the EPA who, in most cases, rule on Class VI permits (the permit to store CO2 underground). When you open the window of opportunity for more and more projects, you’re going to have more people submitting applications for permits.

Some states like North Dakota and Wyoming have what’s called State primacy, those states can review and approve Class VI permits, but by and large for now, most of these permits are going to be going through the EPA.

Bridgeport Ethanol plant in Nebraska. Image: Bridgeport Ethanol, LLC

We understand that there’s work being done to improve the permitting process not just for Class VI’s, but for other energy projects as well. Speculatively [speaking], if there is a change in the house, you could see a situation where a deal could be done about find a way to accelerate permitting across the board.

With these recent developments, would you be looking to target ethanol producers that are involved in large-scale carbon capture pipeline projects developed by Summit Carbon Solutions and Navigator CO2 Ventures?

The first thing [here] is that we always want to see wins on the board for carbon capture and sequestration. There is so much to be done, so I think any success there is going to be a success for the sector, which means it’s ultimately a success for us.

But that’s not our strategy. We’re more source to sink and then some hub strategy with flue gas. I think ethanol is an important part of the early game in energy transition. We view it as a way to learn how to do CCS without having a very big capital budget. We basically do the whole thing, have a reasonable spend in capital cost, and understand how it works. Carbon America will be able to absorb mistakes, get deals done, and then be able to scale up as quickly as we can and move into some of the harder to abate areas.

How far away are potential cement and natural gas plants in your pipeline?

I don’t think it’s too far away. I think projects can be economically viable under the new rules and revenue streams. We are in discussions with harder to abate emitters – natural gas power plants and cement plants in particular – and trying to find the right way to make these projects work.

That sometimes includes looking at larger sequestration plays and getting CO2 for them. Another is working with technologies to help capture their CO2. We were already talking with them before the IRA rules changed. We’ve seen a lot of people lean in harder and faster on this because they do really see a path to an economically viable project for them.

Read more: Carbon Capture Is A New Sector That People Have To Learn About – Carbon America CEO Brent Lewis

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