by Dawn Lima, Vice President of Renewable Energy and Sustainable Technologies at Foss & Company
Recent estimates show that after two years of rapid growth, carbon capture, utilization, and storage (CCUS) is now slowing down, which could damage long-term sustainability goals. The Inflation Reduction Act (IRA) initially caused CCUS growth to explode, but numerous factors have since impeded the full potential of CCUS efforts.
Before 2022, CCUS was far less financially attractive than it is today. Tax credits for carbon capture were previously capped at $50 per ton of carbon dioxide stored.
The IRA increased the amount by 70 percent to $85 per ton for sequestration, i.e., the permanent storage of CO2. The amount for utilization, meaning reusing captured carbon instead of storing it, rose from $35 to $60 per ton. This increase has made many projects more economically feasible.
In particular, while sequestration has traditionally been the primary focus of CCUS, the increased utilization of credits has spurred a wave of innovation. Companies are exploring ways to integrate CO2 into everyday products like concrete and cement, where it can be permanently embedded and actually strengthen concrete. So, this approach reduces emissions but it also adds value by enhancing product durability. The financial incentive provided by the IRA acts as a catalyst for these advancements, encouraging companies to monetize captured CO2 creatively.
The effects of the IRA’s incentives have been swift and dramatic. From 2022 to 2023, the number of planned CCUS projects in the US grew by more than 90 percent. Clearly, well-designed policy incentives play a big part in fostering sustainable innovation.
Why CCUS is waning
Despite the rapid growth spurred by the IRA, CCUS projects in the United States have encountered hurdles that have slowed momentum in 2024. These challenges stem from regulatory bottlenecks, financing complexities, and public resistance. The US will not be able to maintain its progress without addressing those problems.
Let’s go through them one at a time. Regulatory bottlenecks have been the biggest problem. In particular, the permitting process for Class VI injection wells, where captured C02 is stored underground in stable geological formations, is notoriously slow and frustrating. The Environmental Protection Agency (EPA), the primary federal agency overseeing these permits, has yet to approve a single one of these injection wells since the IRA’s passage in 2022. This delay creates uncertainty and forces developers to navigate protracted timelines that can stretch from two to five years.
States with primacy – i.e., they have been granted the authority by the EPA to independently manage and approve injection well permits – have demonstrated far greater efficiency in the permitting process. These states have developed regulatory frameworks and enforcement capabilities that meet or exceed federal standards. For example, Wyoming and North Dakota process permits within nine to twelve months, a stark contrast to the multi-year timelines seen at the federal level. However, most states lack the resources or regulatory frameworks necessary, leaving many projects mired in federal delays.
Relevant: New Appleyard Lees Report Hints Towards Bright Future For CCUS
The expansion of CO2 pipeline infrastructure has also faced significant obstacles. New pipelines are essential for transporting captured CO2 from industrial sources to storage sites. Unfortunately, permitting processes for these projects are just as fragmented as for injection wells, varying from state to state and even at the county level. This inconsistency creates delays and uncertainty.
The regulatory issues trickle down to cause a lot of revenue uncertainty for CCUS developers. For many projects, the primary revenue stream comes from the tax credits established by the IRA. However, since government-run incentives are inherently subject to regulatory changes, delays, and political shifts, this creates a degree of uncertainty for long-term projects. The uncertainty can deter lenders and external investors who need assurance that tax credit revenue will remain stable. Companies with the ability to self-finance projects or draw on existing equity have navigated these challenges more effectively, but smaller developers often struggle to secure funding.
The struggles are further exacerbated by public opposition over perceived safety risks of these pipelines. While CCUS pipelines differ fundamentally from traditional oil and gas pipelines and present less risk for accidents or explosions, public awareness of these differences remains limited, fueling resistance to new projects.
Making CCUS work in 2025
To ensure the survival and expansion of CCUS technologies in the coming year, stakeholders across the industry have identified several key areas for improvement, ranging from increasing the credit for utilization to streamlining regulatory processes.
Currently, the tax credit for geological sequestration – in which carbon dioxide is stored underground in stable formations – is $85 per ton, while utilization projects, which integrate CO2 into products like concrete and cement, receive $60 per ton. This disparity overlooks the fact that utilization can be technically more challenging, requiring significant R&D investment. A proposed “Parity Act” aims to align utilization credits with sequestration credits at $85 per ton, leveling the playing field.
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Another major step would be extending the IRA timeline. Currently, the IRA provides a 12-year credit for CCUS projects, with construction required to start by 2033 to qualify. While this may seem sufficient, the long lead times for permitting and financing mean that many developers are already lobbying for an extension.
Lengthening the eligibility period would provide greater certainty for investors and lenders, making it easier for projects to secure capital. Finally, there’s a clear need to streamline permit processes. Expanding state primacy or implementing federal reforms to accelerate permitting timelines could unlock numerous projects.
The future of CCUS
The success of CCUS as a pillar of the U.S. clean energy strategy depends on more than just tax credits. It will require a coordinated effort to address financial, regulatory, and social challenges.
By implementing these additional incentives and policy changes, the US can ensure that CCUS reaches its full potential in supporting the nation’s ambitious climate goals.
