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Greenhouse Gases

45Q, the tax credit that’s luring US companies to capture CO2

Cement, ethanol, and ammonia makers are among those looking to convert waste carbon to cash

by Melody M. Bomgardner
February 23, 2020 | APPEARED IN VOLUME 98, ISSUE 8

 

09808-feature3-netpower.jpg
Credit: Net Power
Net Power's demonstration gas-fired power plant does not release CO2. Instead, it uses the gas to power a turbine before recycling or reusing it.

This year, the US presidential candidates are debating a number of policies designed to combat climate change by cutting down on carbon dioxide. Ideas in the mix include passing a giant Green New Deal, establishing carbon cap-and-trade schemes, instituting a carbon tax, and planting a lot of trees.

45Q by the numbers

$50: Tax credit per metric ton of CO2 captured and stored permanently

$35: Tax credit per metric ton of CO2 captured and used, such as for enhanced oil recovery

25 million–40 million t per year: Potential new US capacity for CO2 capture, storage, and use in the next 5–7 years

Source: National Petroleum Council.

The most effective policies, economists and industrialists agree, are those that put a price on carbon. Doing so with a tax could make for a potent policy, but the idea doesn’t have traction among legislators.

Yet a low-key adjustment to the US tax code is poised to make capturing CO2 a financial winner for companies making corn ethanol and ammonia. And it may get high-emitting industries, including cement, steel, and power, to jump on the carbon-capture bandwagon. If demand for carbon-capture deployments soars, investors may place more bets on firms working on new, lower-cost capture technologies.

The new rule is not a tax but rather an expanded tax credit called 45Q. Under the rule, enacted in February 2018, industrial manufacturers that capture carbon from their operations can earn $50 per metric ton (t) of CO2 stored permanently or $35 if the CO2 is put to use, such as for enhanced oil recovery (EOR). In EOR, pressurized CO2 is pumped into existing wells to push out additional oil from hard-to-access rock pores.

An earlier credit was limited to 75 million t of captured CO2 and paid out only $20 per metric ton. Some large fossil fuel companies like ExxonMobil have used the credit, but only at sites that can conveniently capture CO2 from natural gas separation plants and pipe it to regional oil producers for EOR.

The new version does not cap the credit. To qualify, companies just need to start constructing carbon-capture facilities within 7 years of the credit’s enactment. Once the facilities start, they will then have 12 years to claim their money.

Companies with emission-intensive operations are busy modeling whether facilities can take advantage of the credit. Most industries have no experience with carbon-capture technologies, and it is not yet known if the credit will spur new commercial-scale installations for capturing CO2.

Already, though, a partnership that includes the cement maker LafargeHolcim and Svante, a provider of CO2-capture technology, is studying whether the credit will make it profitable to capture the gas from a Colorado cement plant and permanently store it underground.

If you are on top of a saline aquifer with abundant, cheap storage, then there is a clear business case.
Alex Dewar, senior manager, Boston Consulting Group

As is the case for the cement project, the credit will first tempt companies with large, emission-intensive, stand-alone plants, according to Alex Dewar, a senior manager at Boston Consulting Group.

“You look for any edge in a highly commoditized market. If you are on top of a saline aquifer with abundant, cheap storage, then there is a clear business case,” Dewar says. In contrast, he says, companies with smaller plants or facilities with several emission stacks, such as petrochemical complexes, will likely find today’s capture technologies too expensive.

A look at the proponents of the expanded credit shows the range of organizations that expect to benefit. They include energy companies and utilities; unions for workers in mining, utilities, steel, and boiler making; an algae biomass trade group; coal companies; agribusiness; industrial gas firms; and several carbon-capture-promoting organizations.

The Renewable Fuels Association, a trade group representing corn ethanol producers, supported the expanded credit as a member of the Carbon Capture Coalition. The ethanol industry produces as much as 50 million t per year of CO2, points out Edward Hubbard, general counsel at the Renewable Fuels Association.

“We represent a significant opportunity for the carbon-capture market because we produce a very good, pure source of CO2,” Hubbard says. Already, ethanol makers capture about 20% of that CO2 to sell to soda bottlers or for dry ice. Some producers in Illinois located near favorable geologic formations get state credits for sequestering the gas underground.

Hubbard says the tax credit will spur investment in pipelines to take CO2 from ethanol plants and use it for EOR, in synthetic fuel manufacturing, or to harden concrete blocks. Ethanol producers that have significantly lowered their carbon emissions can also fetch high prices in states, like California, that have low-carbon fuel regulations.

Like ethanol makers, ammonia producers and natural gas processors obtain relatively pure CO2 as a by-product. And now those firms don’t have to worry about the old cap’s limits on how many credits they can claim.

Wabash Valley Resources is developing a project for carbon capture and sequestration at an ammonia plant planned for West Terre Haute, Indiana. The plant will gasify an oil refinery waste product, petroleum coke, to create a stream of hydrogen that is then reacted with nitrogen to make ammonia.

The project, which was announced before the new credit was enacted, is expected to capture up to 1.75 million t per year of CO2 and store it in a nearby saline sandstone aquifer. Wabash won funding from the US Department of Energy and has not said if the project will also take advantage of 45Q.

Similarly, Lake Charles Methanol—which lobbied for the tax credit—is building a coke gasification plant in southern Louisiana that will produce methanol and other chemicals. The plant, backed by a DOE loan guarantee, is expected to capture 90% of the CO2 generated in the process. Wabash and Lake Charles Methanol have not disclosed the technology they will use to capture the carbon.

Traditionally, gas separation facilities absorb CO2 in aqueous amine solvents. The few pilot projects that capture CO2 from coal-fired power plants use similar technology. Indeed, nearly all carbon-capture methods rely on some variation on aqueous amine chemistry.

A downside of aqueous systems is they require a lot of heat to release the captured CO2. That’s why innovation in carbon capture is aimed at developing substrates that put CO2 in contact with amines in a less costly way.

In addition, making carbon capture viable at existing petrochemical and gas-fired power plants would require absorbents or adsorbents that are cost effective when used on emissions with CO2 concentrations of 50% or less.

Amine substrates in development include polymer membranes, porous and semiporous materials, and sophisticated nanostructures such as metal-organic frameworks.

Svante, the technology provider working with LafargeHolcim, uses what it calls structured adsorbent laminate materials in its equipment. Svante hopes eventually to swap out the laminate sheets for something cheaper. It has partnered with the start-up Mosaic Materials to develop inexpensive metal-organic frameworks, which can help separate CO2 from a waste stream and then release it from the metal-amine complex with just a small shift in temperature.

Another strategy is to design new facilities with built-in carbon capture, thereby avoiding postcombustion systems entirely. In 2018, Net Power and partner Toshiba Energy Systems & Solutions fired up a demonstration power plant that burns natural gas and pure oxygen to heat and pressurize CO2. The supercritical CO2 spins a new type of turbine. Most CO2 is used again in the process; any excess can be fed into a pipeline.

Net Power said at the time that it expects strong demand for its technology thanks to the 45Q tax credit and industries that want access to cheap CO2.

Beyond the manufacturers backing industrial carbon-capture projects, private investors, corporations, and deep-pocketed foundations are keen to get involved because of the new credit, BCG’s Dewar says. In the past, carbon-capture efforts relied almost entirely on funding from the DOE.

The financing support will speed deployment, Dewar forecasts. For now, new technologies like Svante’s are still at the demonstration stage, meaning it will be some time before they are selected for large-scale facilities. Therefore, most projects taking advantage of the tax credit will use tried-and-true aqueous systems, Dewar says.

Thomas McDonald, CEO of Mosaic Materials, agrees that companies benefiting from 45Q will rely on mature systems, with a few early deployments of new technology sprinkled in. But the projects will drive demand for better technology.

“The role of the credit is to get the capture industry off the ground. After that happens, next-generation technology can come in and compete on price,” McDonald says. “That’s what we need to be doing to dramatically reduce emissions from existing infrastructure.”

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