US spurs zest far beyond its borders for CCUS as ‘critical’ decarbonisation tool
With the climate crisis becoming more prominent, the energy transition is putting decarbonisation to the forefront, as low-carbon energy becomes the industry’s paradigm, thus, many players are employing new technologies to curb their carbon footprint. In this quest to reduce emissions from hard-to-abate sectors, carbon capture, utilisation, and storage (CCUS) has become a valuable tool, making further inroads thanks to recent shifts in policy and regulations in the United States, outlines Australia’s Worley.
Worley claims the impacts of President Joe Biden’s Inflation Reduction Act (IRA), which boosts the 45Q Tax Credit from $50 to $85 per ton of CO2 sequestered, are shifting the viability of CCUS projects across North America, Europe, and the Asia-Pacific region, as these U.S. carbon tax credits are bringing a renewed interest in carbon capture, utilisation, and storage. According to the International Energy Agency (IEA), over 200 carbon capture facilities are set to be operational by 2030, capturing over 220 million tons of CO2 a year.
Adam Green, Worley’s Carbon Policy Advisor, commented: “CCUS is a critical tool to address climate change. But until recently, projects and technologies haven’t been financially competitive enough to succeed in most regions. This is finally changing. We’re seeing much more frequent project updates, technology developments, and funding announcements in heavy industries. CCUS is higher on the agenda than it has been for years, particularly in hard-to-abate sectors that need immediate decarbonisation solutions.
“The goal of this tax credit is to incentivise hard-to-abate industries such as gas-fired power plants, cement, steel, hydrogen, and petrochemicals to retrofit or incorporate CCUS into their facilities. These changes create more certainty for investors, which will unlock more investment options and stimulate the market in a way that tax liability limited credits do not. A study by the Bipartisan Policy Center found that one dollar in cash has nearly double the value of a dollar in tax credits to a project developer.”
Furthermore, Worley highlights that the IRA lowers the carbon emissions threshold that facilities must meet to qualify, thus, more projects could become viable. For power generation, the capture threshold for credit-eligible facilities is going to fall from 500,000 tons per year of CO2 emitted to 18,750 tons per year. Green explains that the option for direct payment means that more participants can benefit from CCUS, rather than just those with high cash tax liabilities.
Previously interrupted and delayed projects across the U.S. – from the failure of the Kemper County facility in Mississippi to the cancellation of the Petro Nova CCS retrofit unit in Texas – have cast doubt over the viability of CCUS technologies, however, the changes instigated by the IRA are expected to help address this uncertainty.
“This is welcome news for investors who had previously invested hundreds of thousands of dollars in feasibility studies, development plans, and community engagement, only to fail to meet the criteria for government funding or lose in the competitive application process. CCUS projects that didn’t have a future before, are back on the agenda,” underlined Green.
Moreover, Worley is of the opinion that the investor attractiveness of the revised 45Q Tax Credit in the U.S. has not been lost on the governments of international CCUS hotspots such as Canada, the UK, the European Union, and Australia. This is further hammered home by other governments being concerned about the extent to which the IRA will redirect CCUS investment from their jurisdictions.
Green elaborates: “Canada’s 2023 budget has expanded the investment tax credits available for CCUS and hydrogen production. This also includes clean technology projects designed to stimulate investment to support the country’s energy transition.
“The European Union’s Green Deal Industrial Plan and its Net Zero Industry Act (NZIA) also look to address Europe’s main bottlenecks to a successful CCUS industry. And this should spark greater interest in CCUS projects and technologies across the Atlantic, too.”
Despite this, Worley believes that government incentives alone will not guarantee the success of projects, thus, carbon-intensive clusters require collaboration, just like the UK found that approaching the deployment of CCUS through industrial clusters – which allow several businesses to share carbon transport and storage infrastructure – can maximise economies of scale and reduce the total investment required.
“While the U.S. already has several of its own clusters in the making, the expansion of the 45Q credit programme could support many more industrial clusters to follow in these footsteps. A collaborative and integrated approach will be key to bringing neighbouring industries together. This unlocks the synergies of sharing infrastructure for transport and storage,” added Green.
Therefore, Green is adamant that the cluster approach helps to drive down the unit cost of CCUS projects and supports smaller emitters to decarbonise and create new products and services using carbon. An example of this level of collaboration is the Humber Zero project in the UK, which brings multiple facility owners together to reduce the CO2 footprint of their operations through CCUS.
“These projects are technically challenging, so sharing learnings and expertise to overcome these challenges is critical. We’re working on CCUS projects on two neighbouring facilities in the Humber region, which will use the same CCUS technology and share infrastructure to transport the CO2 for safe storage,” underscored Green.
While the U.S. tax credit will not directly impact every company exploring CCUS, Worley claims that it will help to prove the commercial viability of the technology and increase the confidence of developers and investors. As a result, Green sees a pathway to a scale for the CCUS industry albeit not necessarily the same pathway as other energy transition technologies like solar and wind energy.
“For many carbon-intensive industries, CCUS is one of the only viable decarbonisation options available today. And as its momentum builds on the back of new regulations and collaborations in key regions, so too will the viability of CCUS projects all over the world,” concluded Green.
Worley recently secured a detailed engineering design services deal for Petronas’ huge carbon capture and storage (CCS) project offshore Sarawak, Malaysia.