New bill would expand carbon capture US tax credit

Wednesday, 3 August 2016

A diverse group of 10 Senators, including the Republican Majority Leader and the Democratic nominee for Vice President, are backing new legislation that would significantly expand the US tax credit for carbon capture activities, known as 45Q. 

The existing provision in the law, enacted in 2008, was an important step toward advancing the spread of carbon capture projects in the US. However, caps in the current law severely limit its ability to promote CCS deployment. In a letter to the bill’s cosponsors, the Institute’s General Manager – Americas, Jeff Erikson, said that “The Institute believes your bill has the potential to provide a significant boost for both CCUS deployment and the reduction in carbon emissions that will result.” 

The credit is available to companies that capture CO2 from power plants or industrial facilities and either sequester it or sell it to the oil industry for use in enhanced oil recovery with permanent storage, however, its current structure and very low value has hampered its use in helping develop new CCS projects.

The legislation would address these shortcomings by providing more certainty to project developers and making important improvements including increasing the credit value and ensuring that new carbon use technologies are eligible for the credit. Importantly, it would also lower the threshold for the annual amount of CO2 that an eligible industrial facility must capture from 500,000 tons* (US) to 100,000 tons (US), making the credit available to more projects.

The Senate bill comes as a counterpart to similar legislation previously introduced in the House of Representatives by Rep. Michael Conaway, marking the first time that bills to expand 45Q have been pending in both houses of Congress. The 45Q bills have attracted support both from Members of Congress with an interest in reducing CO2 emissions, and those who hope to expand use of CCUS for enhanced oil recovery and to promote the use of coal. Senate Majority Leader Mitch McConnell and nominee for Vice President Tim Kaine have cosponsored the Senate measure. 

Outside of Congress, 45Q expansion enjoys the support of a diverse coalition of industry, environmental and union interests. “When utilities, coal companies, and environmental groups come together to support your bill, you know you’re onto something that could work,” bill co-sponsor, Senator Heidi Heitkamp, said.  

* US ton is equivalent to 2,000 pounds. For more information and guidance on converting to metric tons (tonnes) visit the US Energy Information Administration