Insights and Commentaries
US, Norway Use Taxes, Credits to Lead World in Carbon Management
Deployment of carbon capture and storage (CCS) needs to increase at least 100-fold by 2050 for the world to meet its net-zero emissions goals. The US and Norway illustrate how effective government policy can help achieve this.
20th September 2023
The US and Norway lead the world in carbon management after differing government approaches to pricing carbon spurred significant investment in the sector, highlighting the range of financial and policy incentives that can be used to accelerate progress towards meeting net zero targets by 2050.
While the total potential capacity of carbon capture and storage (CCS) facilities operating and in development has surged by 44% in the past year, deployment must increase at least 100-fold by 2050 to fulfil its essential contribution to a net-zero future.
This will require significant investment from both the public and private sectors worldwide, and the approaches of the US and Norway provide case studies in contrasting but equally effective pathways to embracing carbon management.
The US began injecting CO2 underground in the 1970s and 50 years later has the world’s highest number of CCS projects in operation and under construction, while Norway has been leading the charge in Europe since 1996, with its Sleipner and Snohvit projects in operation and Longship full-scale project under construction.
Norway’s projects were triggered by one of the world’s first carbon taxes, introduced for the oil and gas sector by the Norwegian government in 1991.
The US adopted a different approach building on its decades of experience with enhanced oil recovery (EOR), which provided a value for carbon dioxide injection and kick-started CCS deployment in the 1970s. In 2008, the US government added tax credits for CO2 storage — called 45Q in reference to the relevant section of the tax code — that further enhanced the economic case for CCS.
This stimulus was boosted significantly in 2022 when the US passed the Inflation Reduction Act, which extended the 45Q tax credit to provide up to US$85 per tonne of CO2 permanently stored and US$60 per tonne of CO2 used for enhanced oil recovery or other industrial uses.
A closer examination of both approaches reveals commonalities and lessons for the rest of the world and highlights that it is not technological challenges that impede investment in CCS – create an economically viable commercial business case and companies will invest.
To develop a robust business case, it is imperative to put a value on carbon emission reductions, either via a carbon tax like in Norway, a tax credit like in the US, or a cap-and-trade mechanism.
The cost of CCS is often perceived as a barrier to widespread deployment, but as with any technology, costs come down with deployment and innovation. Governments have a major role to play in accelerating technological innovation through R&D and facilitating fit-for-purpose business models that help reduce risks and costs.
Transport and storage networks are an essential component of both risk mitigation and operational cost reduction in reducing the overall cost of CCS. It is imperative for countries to map and understand their CO2 storage capacity and aid the private sector in the identification of suitable sites. In addition, governments have a leading role in supporting the build-out of CO2 pipeline networks to reduce cross-chain risks and enable the establishment of CCS hubs that significantly reduce unit CO2 storage costs.
Again, the US and Norway governments demonstrate how this can be done effectively.
The US Government has a comprehensive policy framework for supporting carbon management technologies, including providing funding, supporting R&D investments and facilitating storage resource development.
The 2021 Bipartisan Infrastructure Law provides over $12 billion in investments in next-generation carbon capture, direct air capture, integrated CCS demonstrations and industrial emissions reduction demonstration projects, as well as CO2 transport and storage infrastructure.
The US government has also taken a lead in facilitating geological CO2 storage resource development through its Carbon Storage Assurance Facility Enterprise (CarbonSAFE) Initiative, aimed at the development of geologic storage sites for an estimated 50 million tonnes of CO2 each. The projects selected aim at improving the understanding of project screening, site selection and characterisation, as well as baseline monitoring, verification and accounting/assessment procedures.
The US has also established a National Carbon Capture Center, a large public-private co-founded test centre enabling new providers to test their technologies.
Similarly in Norway, government financing in the form of research programmes, direct subsidies and co-financing with industry has continued the development of CCS following the start-up of the Sleipner project in 1996. The country inaugurated the world’s largest test centre for CO2 capture, the Technology Centre of Mongstad (TCM), in 2012.
To help accelerate global progress on CCS, in 2012, Norway and the US collaborated to stand up the International Test Centre Network to leverage their domestic programs and openly share expertise for the good of all nations.
The Norwegian parliament in autumn 2020 agreed to a funding model and conditions for further project development of the Longship full-scale CCS value chain, the largest climate technology investment in Norwegian industry. Longship will be the first cross-border, open-source CO2 transport and storage infrastructure network in Europe and offers companies across the continent the opportunity to store their CO2 safely and permanently underground. The government will fund NOK 18 billion of its total cost of NOK 27 billion.
With the deployment of CCS required to increase at least 100-fold by 2050 for the world to meet net-zero emissions targets, significant investment from both the public and private sectors in multiple countries, and additional financial and policy incentives, are vital.
Policy priorities for governments include recognising the long-term value of geological storage of CO2, facilitating establishment of CCS networks and creating conditions for investment in the deployment of CCS.
The US and Norway case studies illustrate how effective government policy can translate into investment in carbon management. If we are to meet global climate targets, it is imperative that more countries follow in their footsteps, working together to accelerate deployment of CCS as a critical tool necessary to help mitigate global climate change and achieve net-zero emissions.
This opinion piece was authored by Jarad Daniels, CEO of the Global CCS Institute, and Nils Rokke, Executive Vice President of Sustainability at SINTEF.
It was originally published by EURACTIV on 8 September 2023. Read more here.