Congress Acts to Modernize CCUS Tax Credits

We’ve always been an enthusiastic supporter of carbon capture, storage, and utilization (CCUS) technologies, maintaining that this undervalued technology is crucial for reducing CO2 emissions. Fortunately, lawmakers seem to be getting on board as well. In March, Representatives David B. McKinley, P.E. (R-W.Va), and Terri Sewell (D-AL) reintroduced the Carbon Capture Modernization Act to improve the Section 48A tax credit for coal-fired power plants investing in CCUS technology. Senators John Hoeven (R-ND) and Tina Smith (D-MN) have introduced the Senate’s companion legislation.

While Congress qualified carbon capture retrofit projects for the 48A tax credit in 2008, the credit has largely gone unused. Why? Government red tape, of course. To access the tax credit, existing coal-fired power plants must capture at least 65% of all CO2 emitted. This stipulation was a hard target to meet due to various economic and technological reasons.  The  McKinley-Sewell bill reduces the requirement to 60%. The current 65% requirement has left nearly $2 billion in tax credits on the table.  The legislation would also permit small coal-fired units to take advantage of the tax by reducing the eligibility threshold from 400MW to 200MW.

Updating the 48A credit with these new criteria will help unlock those funds allowing CCUS to reach its full potential, or as Representative Sewell puts it, “… carbon capture technology is a necessary tool as we push for a clean energy economy.”

How can 48A tax credits play a role in reducing carbon emissions? Retrofitting existing coal plants with CCUS technology would reduce emissions without shifting all the costs of these exorbitant upgrades onto the backs of ratepayers. That’s welcome news for consumers.

The introduction of this legislation in the House and Senate is a clear recognition by lawmakers that we will continue to need coal as a reliable source of baseload electricity. Carbon capture usage is one of the very few options that significantly reduce emissions from coal-fired power plants while still allowing us to reap the affordable and reliable benefits of these resources.

But 48A tax credits aren’t the only pathway forward for deploying CCUS. The private sector has stepped up to make this carbon reduction technology a commercial reality.  For example, billionaire tech guru Elon Musk is offering a $100 million prizefor the “best carbon capture technology.” Exxon Mobil is getting in on the game and announcing a $3 billion investment in CCUS. Both Exxon and Musk seem to understand that CCUS is critical for addressing climate change while being mindful of costs.

In Washington, D.C, lawmakers understand the importance of the tax code in making CCUS a commercial reality through their support of the Carbon Capture Modernization Act.  As Senate Energy Committee Chairman, Senator Joe Manchin (D-WV), puts it, “The transition to a cleaner energy future must come through innovation, not elimination.”

Chairman Manchin is right. We will need all of our energy resources and private and public sector support to transition to a low carbon future while still sustaining an affordable and reliable energy supply. In fact, some in industry have highlighted that without workable policies and investment in technologies like CCUS, efforts to decarbonize the grid by 2035 is not a realistic or attainable goal.

CCUS is a vital technology to that end. Let’s hope policymakers continue to recognize its role.