The U.S. Inflation Reduction Act of 2022
27th August 2022
Last week, on August 16, President Biden signed into law the Inflation Reduction Act of 2022 (IRA), which includes an historic investment of $369 billion in climate and energy funding, as well as important enhancements to the Internal Revenue Service section 45Q on carbon capture and storage.
“The international scientific consensus is that carbon capture and storage will play a vital role in meeting global climate goals and the transition to net-zero”, said Jarad Daniels, CEO of the Global CCS Institute. “CCS is highly versatile and can be used to reduce emissions across sectors; from power generation and natural gas processing, to hard-to-abate industries such as cement, steel, and fertilizer production.” Mr. Daniels further emphasized the significance of the Biden-Harris Administration signing the IRA into law, saying, “ It marks a significant milestone in the advancement of CCS. We know that global CCS capacity needs to scale from today’s 40 million tonnes per year to multiple gigatons per year by 2050, and this historic law includes important provisions that enhance the financial viability of CCS projects in the United States.”
Diving into the details, the specific 45Q enhancements contained in the IRA include:
- Extending the start of construction date from January 1, 2026, to January 1, 2033.
- Lowering the threshold for captured qualified carbon dioxide
- Direct Air Capture - 1,000 tonnes
- Electricity generating facility - 18,750 tonnes (based on certain design criteria)
- Any other industrial facility - 12,500 metric tonnes
- Increasing the credit amounts
- Industrial and power facilities - $85/tonne
- Enhanced oil recovery - $60/tonne
- Direct Air Capture
- Capture and storage of carbon - $180/tonne
- Capture and utilization of carbon - $130/tonne
- Note: these appear to rely upon satisfaction of the established new prevailing wage and apprentice requirements. The values represent a 5X multiplier.
- Including new direct pay provisions
- Corporate projects receive direct pay for the first 5 years after the carbon capture equipment is placed in service
- Non-profit organizations and co-ops can receive direct pay for all 12 years of the credit
Overall, the Inflation Reduction Act is undoubtedly a big step in the right direction for accelerating CCS deployment (both in the U.S. and abroad) and will further encourage public-private sector collaboration on meeting global climate and energy goals.