Regulatory | Energy Transition | NGI All News Access | NGI The Weekly Gas Market Report | Shale Daily
Inflation Reduction Act Seen Vastly Improving CCUS Economics for Natural Gas Power Plants
The Inflation Reduction Act of 2022 (IRA) could more than double the amount of carbon dioxide (CO2) emissions that can economically be abated via carbon capture, storage and utilization (CCUS), according to modeling by Enverus.
Natural gas-fired power plants, oil refineries and upgraders, as well as cement production, are among the emitting sources that would see the biggest improvement in economic viability of CCUS, said Enverus’ Sarp Ozkan, commercial product vice president, and Ryan Luther, senior vice president for intelligence. The analysts hosted a webinar detailing how President Biden’s landmark climate legislation stands to accelerate the energy transition.
The IRA expands and extends the Internal Revenue Service Section 45Q tax credit for carbon capture. The credit is now applicable to projects starting construction before 2033, versus 2025 previously. The minimum carbon capture requirement for a qualified facility also is lowered. In addition, developers have the option to receive the tax credit in the form of direct payment for the first five years of a project, Ozkan and Luther highlighted.
[Client Collaboration: What type of additional content / information / data would you like to see more of in NGI? Tell us now.]
The credit itself, meanwhile, is now expanded to $85/metric ton for permanent storage and $60/ton for enhanced oil recovery, respectively, up from $50 and $35 previously.
Natural Gas ‘Necessary Transition Fuel’
“The new $85 rate really expands that level of emissions that could be captured,” said Luther. “It more than doubles the amount of carbon that could be captured and stored using this credit today.”
Luther told NGI that the 45Q credit “will need to cover the cost of carbon capture, transportation and storage. The cost of transportation and storage vary by project, but assuming it costs $20/ton, there’s $65/ton remaining for capture, which puts approximately half of the gas power plants into the money for retrofitting with carbon capture.
“We view natural gas as a necessary transition fuel for power generators to hit emission reduction targets, and we expect to see a boom in carbon capture being added to existing natural gas power plants in the United States.”
Sectors that can economically take advantage of the pre-IRA $50 incentive are limited to a few, including natural gas processing, fertilizer production and petrochemicals, Luther said.
Only a handful of natural gas power plants and cement producers, for example, can achieve low enough breakeven rates for 45Q to make sense under the $50 credit.
“Moving that to $85, you expand to almost all the other areas, except coal power plants, which have a much higher cost due to…the amount of other types of emissions that are associated with those plants,” Luther said.
While the $85 credit greatly applies to point-source emissions, projects capturing CO2 via direct air capture (DAC) will receive higher credits of $180/ton for permanently stored CO2 and $130/ton for CO2 stored in processes such as EOR.
However, DAC technology “is still too expensive today to generate sufficient returns even at these higher tax credit rates,” said Ozkan. But, since “it will increase that revenue stream significantly, it could entice a lot more companies to venture into it and accelerate that technology’s development.”
Luther said breakeven CCUS tax credit rates for DAC projects are estimated to range from $100 to $500/ton.
RBN Energy LLC’s Jason Lindquist expressed a similar view on the IRA’s CCUS provisions.
Now that the bill has been signed into law, “it has the potential to significantly support long-term investments in decarbonization efforts,” said Lindquist in a recent post. “The expanded 45Q tax credit should not only boost the types of carbon-capture projects already in place or in development, but also incentivize projects that focus on hard-to-capture emissions, a key step on any net-zero path.”
While oil and gas industry groups such as the American Petroleum Institute have criticized IRA provisions including tax and royalty increases, approval from the sector has been all but unanimous for the expanded CCUS incentives.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 | ISSN © 1532-1266 | ISSN © 2158-8023 |