What is CCS?
CCS, or Carbon Capture and Storage, encompasses various methods to prevent CO2, produced during energy generation or as a byproduct of industrial activities, from entering the atmosphere. It can also be captured directly from the air through Direct Air Capture (DAC). This is the capture component of CCUS/CCS (Carbon Capture & Storage).
After capturing carbon, it can be managed in several ways. Carbon storage involves injecting CO2 into the ground, effectively removing it from the atmosphere permanently. Carbon utilization includes processes that use captured CO2 instead of other compounds. Enhanced Oil Recovery (EOR) is one such process, where CO2 is injected into oil and gas wells to boost oil recovery, partially sequestering the CO2. Other utilization examples involve using CO2 as a feedstock in industrial processes adapted for this purpose.
What is the IRA?
The Inflation Reduction Act is legislation that introduces significant changes across many sectors of the US economy. It has notably altered CCS and the 45Q tax credit, providing more funding and easier access to resources for carbon emission reduction processes. The IRA's impact on energy markets extends well beyond its effects on CCUS and carbon capture practices. While its future beyond 2024 may remain uncertain, there is reason for CCS developers to remain optimistic.
How has the IRA changed things for CCS?
The IRA has made CCS activities more financially rewarding. It primarily increased the value of the 45Q credit, a tax credit that functions like a commodity price for CCS activities, akin to a CO2 sales price. The IRA has raised the price for a tonne of CO2 to between $60 and $180, depending on the CO2 source and the injection/utilization method.
The source determines whether the carbon was captured from industrial processes and energy generation or from DAC. The injection aspect considers how the captured CO2 is handled, whether stored permanently in a Class 6 well, used for additional oil recovery in a Class 2 well, or utilized in another industrial process.
US Code 45Q is the carbon sequestration credit introduced in the 2008 tax code to provide tax incentives for CO2 storage, carbon capture efforts, CCS, and more. The IRA amends Code 45Q concerning CCS.
Increased Payments: The IRA raised 45Q tax credit values, enhancing financial incentives for carbon dioxide storage.
Payment for carbon captured from industrial and power generation facilities and stored in saline geologic formations increased to $85 from $50/tonne.
Payment for carbon captured from industrial and power generation facilities and utilized in EOR or other industrial processes increased to $60 from $35/tonne.
Payment for carbon captured through DAC and stored in saline geologic formations increased to $180 from $50/tonne.
Payment for carbon captured through DAC and utilized in EOR or other industrial processes increased to $130 from $50/tonne.
Lower Requirements: The IRA expanded the number of facilities eligible for 45Q tax credits by lowering the emission requirements.
Power Generation facilities now qualify for credits if they emit 18,750 tonnes of CO2 per year, down from 500,000.
Industrial Facilities now qualify if they emit 12,500 tonnes of CO2 per year, down from 100,000.
Direct Air Capture Facilities only need to capture 1,000 tonnes of CO2 annually, instead of 100,000.
Extended Credit Availability: The credit can be claimed for 12 years post-installation, and facilities starting construction before 2033 are retroactively eligible.
Direct Repayment: Carbon capture project developers can receive 45Q as a refundable direct payment, similar to a tax overpayment. For-profit entities can use this option for five years post-equipment installation, after which they must sell credits if they exceed their tax burden. Tax-exempt entities like states, municipalities, Tribes, and cooperatives can use the direct pay option for the full 12 years post-equipment installation.
What is DAC?
Direct Air Capture is an industrial process that extracts carbon dioxide from the atmosphere by passing air over a compound that binds CO2, removing it from the air. The CO2 can then be extracted from the compound and stored for future use or permanently sequestered underground. The compound can be recycled for further CO2 capture. LandGate’s CCS tools evaluate the economics of using different CO2 sources.
What land data is needed to conduct CCUS/CCS projects under the IRA?
Extensive data is required: geological data to locate suitable formations for CO2 injection, data on nearby wells to assess EOR eligibility, surface data such as proximity to CO2 pipelines or capture facilities, and landowner information for contacting surface rights holders. LandGate consolidates these datasets, offering comprehensive tools and support for CCS projects.
What’s the difference between utilization and storage?
It's essential for developers to differentiate between CO2 utilization and storage opportunities.
Storage involves permanent geological sequestration, where CO2 is injected into underground reservoirs and monitored to prevent emissions. The CO2 is removed from the atmosphere and the carbon cycle. Utilization can involve Enhanced Oil Recovery (EOR), where CO2 is injected to enhance oil and gas production, potentially storing CO2 in reservoirs to offset extracted hydrocarbons. Alternatively, CO2 can be used as a feedstock in industrial processes, such as concrete production, which increasingly incorporates captured CO2.
LandGate’s PowerTools suite for CCS Solutions provides detailed data on Class II and Class VI wells for CO2 injection, as well as facilities across the United States utilizing CO2.
What’s the difference between Class 2 and Class 6 wells?
Wells are classified based on specific criteria and purposes, each with distinct permitting requirements. Class 6 wells, or Class VI, inject CO2 into deep rock formations for Geologic Sequestration to reduce atmospheric CO2 and mitigate climate change. Class 2 wells, or Class II, are used for enhanced oil recovery, waste fluid disposal, and liquid hydrocarbon storage. Only EOR wells qualify as CCS. LandGate provides data on all US wells and allows search and filter options for CCS project criteria.
The CO2 commodity price varies based on whether it's injected into a Class 2 or Class 6 well. Class 2 wells are paid $60 or $130, depending on the CO2 source, while Class 6 wells are paid $85 or $180.
How do I find land appropriate for CCUS/CCS?
Finding suitable land for CCS involves conducting detailed geological surveys and manually searching for landowner information and making contact. Alternatively, LandGate can quickly assess any property in the US for CCS potential and facilitate connections with willing landowners. To learn more, book a demo with our dedicated energy markets team.
