Potential US carbon capture project challenges include regulation, elections, cost reductions

Carbon capture, storage and utilization projects in North America face a degree of uncertainty due to potential regulatory changes, election outcomes, and the pathway for cost reductions, among other factors, S&P Global Commodities Insights analysts said Oct. 30.

The US and Alberta are rated as being "particularly strong" in CCUS regulation, Moira Hollywood, principal research analyst with Commodity Insights, said during a webinar titled "North America CCUS Strategy: Drivers, Issues, and Challenges."

While the US does not have framework regulation in place for the carbon capture sector, it does have various pieces of legislation that have been amended to cover most areas, according to Hollywood's presentation.

In the US, the regulatory bodies that manage oil and natural gas development are largely in charge of regulating carbon capture. These are the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement for offshore projects and the Bureau of Land Management onshore with the Environmental Protection Agency issuing permits for injection wells.

There is clarity around liability and financial security. Fiscal incentives in the US come in the form of tax credits known as 45Q and Alberta has the Carbon Pricing and Emissions Trading System.

Regarding pipeline transport of carbon dioxide, one ongoing regulatory issue involves pipelines that cross multiple states or cross states as well as federal territory, which can cause permitting questions that have delayed some projects, Hollywood said. The Pipeline and Hazardous Safety Administration said in 2022 that it would strengthen its CO2 pipeline safety rules and an update on that process is expected soon, she said.

Licensing carbon capture projects is still largely ad hoc in the US and "a more formal approach would likely be welcomed," she said.

Potential US election impacts

Bipartisan appeal for carbon capture and a possible split Congress serve to shield 45Q tax credits, Jared Jeffery, senior research analyst, said.

The US presidential election "remains too close to call," but while tensions are high, the issue of CCUS has not been featured directly, he said.

The Biden administration's Inflation Reduction Act can be viewed as indirect support for carbon capture tax credits, but the industry and tax credits remain popular among both Democrats and Republicans, Jeffery said.

Administrations on both sides of the aisle have supported the carbon capture industry going back as far as 1997 with the creation of the carbon sequestration program at the US Department of Energy.

The Biden administration's IRA legislation ensures that a substantial potion of projects receiving federal tax credits are located within Republican districts, Jeffery said. Additionally, the fact that the IRA has been legislated into the tax code means it would take a significant majority in Congress to repeal it, and as that appears unlikely, the analysts' base case is for "minimal impact on the tax credit for CCUS in this election," he said.

If Donald Trump were to win, the White House and Republicans were to take both houses of Congress, climate regulations along with the IRA could be rolled back, thus impacting CCUS. Under that scenario, there could be tighter guidelines for tax credits like removing the direct pay provision that has allowed non-taxable entities to avail themselves of the credits, Jeffery said.

A Kamala Harris win along with Democratic control of Congress could result in a greater focus on climate, but perhaps more on technologies like direct air capture than underground CO2 sequestration, he added.

Regarding carbon capture project cost reductions, capture costs are the expenses associated with facility equipment, and constructing and operating a capture facility, according to Tianyu Chen, a carbon capture cost estimation engineer.

The capture costs differ significantly across industries, with ethanol and gas processing having the best capture cost efficiency, while harder to abate sectors like power generation drive the most CO2 capture costs across the full CCUS value chain, Chen said.

Cost differences by industry are influenced by factors like the purity of the CO2 stream, the capture technology used, the plant's size and design, the plant's utilization rate, and location, he said.

Near-term cost reductions come from improved project execution, operational efficiencies, and economies of scale, but mid- to long-term cost reductions are still needed, Chen said.