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Seven Carbon Capture Policy Priorities for the Biden-Harris Administration

December 4, 2020 Work Area: Carbon Capture

“We should be moving toward finding the new technologies that are going to be able to deal with carbon capture”, said President-elect Joe Biden in his town hall conversation, identifying carbon capture technologies as crucial to a pathway to deliver regional economic opportunities, create jobs, and achieve net-zero emissions by mid-century. It was probably the first time carbon capture was mentioned in a presidential town-hall setting, underscoring the increasing attention the technology has been receiving as part of an urgency-driven all-of-the-above approach to achieve climate goals ever since the release of the Intergovernmental Panel on Climate Change’s landmark report on Global Warming of 1.5°C in 2018.

In its proposed $2 trillion climate plan, the Biden- Harris Campaign announced the goal to make carbon capture a widely available, cost-effective, and rapidly scalable solution to reduce emissions. Fortunately, Congress has already created a strong policy incentive foundation with the 45Q tax credit – an inverted $50 price on carbon – one of the few significant climate policies progressed during the past four years. The Department of Energy also possesses a track record of strong, and most importantly, continuous and durable support for carbon capture deployment during Republican and Democratic Administrations alike. In a possibly divided Congress, carbon capture thus provides an avenue for bipartisanship on climate action.

Here are seven near-term policy priorities to accelerate carbon capture commercialization:

1. Optimizing the 45Q tax credit

The existence of the 45Q tax credit has already resulted in the development of more than 30 carbon capture projects, although the rules on how to claim it still have not been finalized. Among these projects are industrial applications like cement and fertilizer decarbonization, and the first at-scale direct air capture plant. They also include new business models like saline geologic storage hubs and CO2 offtake agreements. This strong roster of planned carbon capture projects foreshadows the potential of 45Q to drive carbon capture.

Unfortunately, the credit is set to sunset in 2024 unless extended. In the short-term, an extension could lead to more than 150 million tonnes of CO2 annual capture capacity in industrial sectors alone, and the creation of up to 60,000 jobs. Equally important, a direct pay mechanism could make it easier for companies to claim the incentive in the current environment characterized by low corporate tax liabilities and saturated tax equity markets. With eyes on 2050 targets, policymakers should consider providing different levels of or additional “gap filling” incentives as carbon capture cost vary across applications, and $50 a ton of CO2 might not be enough for higher-cost applications such as steel production. Increased resources to support EPA’s geologic storage permitting processes will be crucial to prevent permitting bottlenecks and project delays.

2. Investing in infrastructure to enable a carbon management market and net-zero emissions

The sooner we can understand and plan the infrastructure needed to achieve net-zero emissions, the better we can optimize for cost and land-use impacts. CO2 transport and storage infrastructure is key to unlocking large-scale CO2 storage. The EU, Norway and the UK have already announced significant investments in infrastructure to aggregate CO2 from multiple sources in joint transport and storage facilities. Meanwhile in the US, most projects are being planned as single-source, single sink facilities, relying on existing storage resources and infrastructure, foregoing economies of scale achieved through connecting multiple sources and storage sites.

Government support for transport and saline infrastructure scale-up solves a chicken-and-egg challenge to establish a carbon management market, and should aim to support upfront capital investment. This could be facilitated through low-interest loans and grants for CO2 pipelines connecting to saline geologic storage hubs. Grants could also support developing these storage hubs and the creation of regional geologic storage utilities pilots to test novel CO2 storage business models.

3. Expanding DOE’s mission

The Department of Energy has provided funding for Front-End-Engineering-Design (FEED) studies to support early project development and lower barriers to deployment and investment. The next Administration should continue and expand on these achievements, including through providing cost-share funding – appropriated by Congress – that supports up multiple projects of particular carbon capture applications and technologies, not just the first one. This could minimize rent-seeking and profit maximization for one off projects. Further steps DOE could take is reviving and strengthening bilateral and international cooperation on carbon capture and storage, including knowledge sharing and technology testing.

4. Cleaning up industry

Industrial emissions account for a quarter of US emissions. Eliminating process emissions from hard-to-abate and energy-intensive industries such as cement and steel production has been receiving increased attention as a climate blind spot. Fortunately, DOE has become more engaged on the topic over the past years. While carbon capture applications for these processes will be able to benefit from 45Q and grants, additional near-term incentives could be provided through the renewal and expansion of the 48C Advanced Manufacturing Tax Credit, which provides a credit for 30 percent of capital investments. However, a full policy framework to decarbonize industry including a more holistic approach involving efficiency, renewable energy, and hydrogen, as well grant funding for industrial decarbonization clusters will be needed.

5. Scaling-up clean hydrogen

Hydrogen has been receiving a bulk of the green stimulus funds globally, but the US conversation has been strikingly mum. With ultra-cheap natural gas, vast carbon capture expertise and incentives available, the US has an incredible opportunity to realize synergies for the scale-up of low-carbon hydrogen produced with carbon capture and storage. A national hydrogen strategy could lay out a path towards commercialization of hydrogen from nuclear, carbon capture, and renewables to decarbonize heavy-duty transport and industrial processes, while identifying infrastructure needs and how to solve the chicken-egg conundrum.

6. Removing historical emissions from the atmosphere

Permanent low-carbon transformation of the economy is lacking, guaranteeing the need for carbon removal to deliver negative emissions in the second half of this century. Advocates have already called for establishing US leadership on negative emissions. One key opportunity is to tailor 45Q to higher-cost carbon removal projects and to create demand for carbon removal, for example through federal procurement obligations. Shared CO2 transport and storage infrastructure will be as important for carbon removal as for point-source capture at industrial facilities.

7. Aligning capital flows with climate ambition and innovation needs

Aligning capital flows with climate ambition has gained traction globally. Policy makers, financial institutions, and project developers should explore how sustainable funds can be channeled towards commercializing advanced energy technologies, including carbon capture. Legislation to make carbon capture eligible for private-activity bonds has already been introduced in Congress. Tools such as voluntary carbon markets as well as Sustainable Development Goals-linked transition bonds could be optimized and expanded to catalyze industrial decarbonization and carbon removal.

Carbon Capture Policy

To achieve deep decarbonization, 75 percent of emissions reductions will come from technologies that are not broadly available today, placing innovation and technology commercialization at the heart of any realistic climate strategy. Innovation gains boosting regional economic growth can also unlock political economic avenues to design and pass more ambitious and comprehensive climate policy. That being said, climate policy will come together piece by piece. To accelerate climate action and design durable climate policy, the next Administration needs to harvest bipartisan climate policy gains where it can, and carbon capture and carbon removal are likely candidates for near-term success.

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