Thanks to Senator Joe Manchin (D., W. Va.), there isn’t much in the way of consequences for big CO2 emitters in Democrats’ new climate bill. But there are huge new rewards for high-emitting companies to pump their greenhouse gasses underground, and for facilities that propose to remove emissions directly from the atmosphere. Those provisions have the startups, investors, and legacy oil companies proposing to provide that service over the moon. “We’re definitely going from a curiosity to a priority,” says Steve Lowenthal, chief commercial officer of Frontier Carbon Solutions, a carbon capture startup. “This changes the game.”
The Inflation Reduction Act, which passed the Senate on Monday and is poised to pass the House on Friday, includes a dramatic change in a crucial tax credit for the carbon capture industry—increasing the government subsidy for capturing CO2 from polluting sources from $50 to $85 per metric ton. Developers say that raising that incentive could tip many projects that once weren’t worth the investment over the financial finish line. The new bill also simplifies the process for receiving those tax credits, and opens the subsidy to smaller carbon capture projects, which together essentially fulfill a full industry wishlist for new carbon capture legislation.
“The fact that [the legislation] actually happened isn’t a big surprise,” says Adrian Corless, CEO of CarbonCapture, a direct air capture startup. “The fact that it actually came out in such a good form and actually came out [so soon] is much better than we expected.”
Formerly, the tax incentive, known as 45Q, only paid enough to convince investors to fund the easiest carbon capture projects, like pipelines to capture CO2 from ethanol processing facilities, which emit almost pure CO2 from tanks where corn is fermented into vehicle fuel. Emissions from power plants and other industrial facilities contribute hugely to climate change, but the actual gas escaping from their smoke stacks contains a much lower percentage of CO2 (coal plant emissions, for example are about 13% CO2), and the fact that that CO2 has to be first separated out from the other gasses makes it much more expensive to capture it and store it underground.
But raising the incentive to $85 per ton means projects that capture carbon dioxide from industrial facilities with lower CO2 concentrations, like natural gas processing facilities and cement plants, could become financially viable. “It really can’t be [overstated] how meaningful 85 [dollars per ton] is to the industry at large,” says Lowenthal.
The package also gives a good deal of government support to a fledgling industry proposing to remove carbon dioxide directly from the air, increasing tax credits for removing CO2 from the atmosphere to $180 per ton. “It’s going to make it easy for us to raise the capital to build the project earlier and to build it faster,” says Corless
Massive Industry Boost
The new bill comes on top of last year’s infrastructure law, which doled out a huge helping of government support for the sector, including $100 million for the Department of Energy to design pipelines to transport compressed CO2 emissions to underground storage sites, $2.1 billion in loans and grants for the private sector to build the pipelines, and $3.5 billion to construct four “hub” facilities to remove carbon dioxide from the atmosphere (although together those facilities will be able to sequester less than 0.1% of the CO2 the U.S. emits each year).
Taken together, the measures could help the fledgling industry grow 13-fold by 2035, according to the Carbon Capture Coalition, an industry group representing startups and oil majors like Shell. “Together with the historic investments made in the Bipartisan Infrastructure Law, this package would provide the most transformative and far-reaching policy support in the world for the economywide deployment of carbon management technologies,” wrote the coalition’s external affairs manager Madelyn Morrison in a July 28 press release.
Oil company Shell, which has eyed carbon capture as a potential growth avenue, lauded the changes as well. “We see the Inflation Reduction Act’s carbon capture-related provisions as key to developing projects that will help reduce emissions in critical industrial sectors,” the company’s media representatives said in a statement to TIME.
International players have also taken note. “It will establish the United States as the place to be to deploy such technologies,” says Christoph Gebald, co-founder of Swiss direct air carbon capture company Climeworks, which opened the first commercial CO2 removal plant in Iceland last year. “And I am very convinced that this will also kick off a spiral of action from investors.”
Environmentalists Remain Skeptical
Not everyone sees the industry’s likely expansion as a good thing. Until now, carbon capture technology has never really ramped up in a big way, despite years of talk by emitters. Many projects have ended in expensive failures, while others never were able to achieve the emissions cuts they promised when the energy costs of running the carbon capture equipment were factored in. Carbon capture funding is one of the few climate provisions that tends to get bipartisan support, but many environmentalists have long portrayed it as a costly distraction from urgently needed emissions cuts, as well as a handout to oil companies that tout the technology as a new revenue stream.
That’s especially true of a controversial provision in the tax code that gives incentives to companies that pump the captured carbon underground in order to extract more oil, rather than just to permanently store it. (The new climate bill raises the government’s reward for this so-called “enhanced oil recovery” to $60 per ton.)
Many in the environmental world, however, agree that we will need some carbon capture to decarbonize hard-to-abate industries like cement production, and that we will need to scale up atmospheric carbon removal technology in the decades ahead in order to have any hope of reaching net-zero targets. But those efforts also won’t do much if they’re not also accompanied by dramatic emissions cuts across society.
Jim Walsh, policy director at Food and Water Watch, says the new legislation relies too heavily on carbon capture. A popular emissions analysis of the legislation from Princeton University’s REPEAT Project counts on companies to quickly scale up carbon capture projects that promise to deliver a fifth of total U.S. emissions cuts by 2030, even though the technology hasn’t been able to achieve significant climate benefits in the past. “The Inflation Reduction Act does not deliver mandates to cut pollution. It creates incentives that may drive up private investment, and it delivers billions to fossil fuel corporations based on the notion that their climate pollution can be somehow captured,” he wrote in an Aug. 11 statement. “This is a dangerous bet.”
Fueling Local Battles
The incentives and proposed expansion to the industry are likely to also set off local controversies. In Iowa, plans to build massive new pipelines to transport carbon dioxide have become a political flashpoint over the past year. Activists and landowners are facing off against investors and a pro-carbon capture governorship over plans to build massive pipelines to transport carbon dioxide released from ethanol plants to underground storage sites in North Dakota and Illinois. Proponents of the pipelines say they will make a serious dent in Iowa’s greenhouse gas emissions and help benefit farmers who grow corn that serves as a feedstock in the state’s ethanol industry. But opponents, including local environmentalist groups, say the pipelines put Iowans at risk of dangerous CO2 leaks, and prop up an obsolete, high polluting ethanol industry while trampling on local farmers who will have to allow developers to build through their land.
Last week, this battle reached a new pitch, when one of the developers, Summit Carbon Solutions, notified state regulators that it would begin filing for eminent domain in order to take control of private land it needs to build the pipeline.
“Summit showed their true colors today,” wrote Food & Water Watch organizer Emma Schmit in an Aug. 5 press release. “Summit may seek eminent domain but [it] is our public institutions, accountable to the people, that will be responsible for the final decision.”
The genesis of Summit’s project goes back to a 2018 change in the 45Q tax credit, which raised the payment from about $24 per ton to $50, giving the developers an economic incentive to start building the pipeline. Speaking with TIME in February, Summit executives said another increase in 45Q, like the one the Senate just passed, might push them to look at building even more pipelines to capture emissions from farther-flung ethanol plants. That would seem likely to throw even more fuel on the fire in Iowa—potentially the first of many such clashes as federal funding helps the industry scale up in the years ahead.