Carbon capture, utilization, and sequestration (CCUS) technologies and projects have been in various stages of development for more than two decades. During that time, several projects in the United States and globally have successfully captured carbon dioxide (CO2) directly from a point source or from the atmosphere and either utilized the CO2 in products or permanently stored it in formations deep beneath the earth’s surface. However, in its 2019 study, the National Petroleum Council reported that while the United States currently deploys approximately 80 percent of the world’s CO2 capture capacity, the 25 million tonnes per annum (Mtpa) captured mitigates less than 1 percent of the nation’s CO2 emissions from stationary sources. With the need to arrest climate change and its causes growing more urgent by the day, new incentives to deploy CCUS technologies more broadly are badly needed.
On August 15, President Biden signed into law the Inflation Reduction Act (IRA) of 2022. The IRA includes nearly $370 billion earmarked for reducing consumer energy costs and increasing American energy security while substantially reducing greenhouse gas emissions. The IRA also includes provisions to further spur decarbonization of the economy by increasing and extending what is commonly referred to as 45Q tax credits for capturing and sequestering carbon dioxide.
The IRA follows last year’s Bipartisan Infrastructure Law (BIL). The BIL included provisions to provide more than $10 billion in grants for carbon dioxide removal projects to be administered through the Department of Energy’s Office of Fossil Energy and Carbon Management (formerly the Office of Fossil Energy). The grant programs include $2.5 billion for carbon capture demonstration projects, $900 million for large-scale carbon capture pilot projects, $2.5 billion for carbon storage validation, and $3.5 billion for direct air capture hubs.
States have also been hard at work seeking ways to tap into the potential for CCUS to address climate change, establish programs to ease adoption of carbon dioxide removal technologies, and create opportunities for new jobs deploying CCUS. For example, on July 22, 2022, California Governor Newsom articulated a need to accelerate development of natural and engineered carbon removal projects across the state and requested that the California Air Resources Board (CARB) set a 20 million metric ton (MMT) carbon removal target for 2030 and a 100 MMT carbon removal target for 2045. On September 16, 2022, California codified in statute a 2045 statewide carbon-neutrality target, a clear regulatory framework for carbon dioxide removal from the air and carbon capture at point sources with subsequent utilization or sequestration, as well as requirements to develop an achievable carbon removal target for natural and working lands.
Financial incentives and numeric targets, however, are just one piece of the puzzle. Carbon removal projects are actually four complex, and often controversial, projects in one. They require equipment to capture CO2, linear features such as pipelines to transport the CO2, a site to safely, securely, and permanently sequester the CO2, and, particularly in the case of direct air capture from the atmosphere, renewable or zero carbon energy projects to ensure that the net CO2 captured exceeds the equivalent emissions from sequestering. The legal questions involved to construct such facilities run the gamut from conventional contracting to understanding the rights to pore space to accounting and allocating for the long-term liability of permanent storage in the earth. Along with generic authorizations required for building and constructing industrial infrastructure, CCUS projects may also require permits for Class VI wells authorized pursuant to the Environmental Protection Agency’s (EPA’s) Underground Injection Control (UIC) regulations or, in states with primacy, a state’s UIC regulations, which permits are notoriously difficult to secure.
Several states have sought to clarify and streamline these processes. For example, Wyoming, North Dakota, and Montana have clarified their laws governing pore space ownership. But these nascent laws have proven to be facially controversial, and further challenges to their application will likely follow.
Additional hurdles to deploying CCUS projects include fears that CCUS projects might prolong a reliance on fossil fuels and, with it, continued reliance on industrial activities that have historically overburdened disadvantaged communities. Steps that the Biden administration has taken to address these concerns include the president’s January 27, 2021, Executive Order, which requires that the investment and building of a clean energy economy must ensure that well-paying union jobs are created and that disadvantaged communities are turned into healthy, thriving communities. The executive order additionally established the Justice40 Initiative, which calls for the development of recommendations on how 40 percent of the benefits of certain federal investments in clean energy and other sectors might be directed toward disadvantaged communities.
Complementing these efforts, the U.S. Department of Energy (DOE) has developed a pilot data visualization tool that displays DOE-specific investments to help illustrate how the Department’s funding and investments are distributed to overburdened and underserved communities. This tool will create a means for holding the government accountable for its Funding Opportunity Announcements (FOAs) for the Carbon Capture programs and Direct Air Capture hubs under the BIL (expected in the third and fourth quarters of 2022).
DOE FOAs for the Carbon Capture programs and Direct Air Capture hubs are expected in the third and fourth quarters of 2022. Responses to the FOAs are likely to be requested in 60 to 120 days with selections to follow in early to mid-2023, although it is possible that the selections may take until later in 2023. Projects will then take several years to obtain authorization and begin construction. As the technology is deployed, it is expected that costs for CO2 removal will decrease and CO2 emissions will be substantially reduced.
States likewise are continuing to draft or revamp rules to simplify the construction of CCUS projects. Texas recently updated its rules in advance of seeking primacy for its administration of the UIC Class VI program (the permitting program authorizing CO2 injection for purposes of geologic storage). This move follows successful primacy applications by North Dakota and Wyoming and a pending primacy application by Louisiana.
