Carbon capture and storage (CCS) deployment continues to grow worldwide. There is international agreement that CCS (an integrated suite of proven technologies that can prevent large quantities of CO2 from being released into the atmosphere) is vital for meeting global climate and energy goals. CCS is a crucial climate mitigation tool for hard-to-decarbonize sectors such as cement, steel, and fertilizer. International policies are providing incentives for spurring CCS deployment. Nowhere is this more evident than in the United States (U.S.) In August 2022 U.S. enacted the  Inflation Reduction Act of 2022 (IRA or Act). The IRA includes a historic investment of $369 billion in climate and energy funding and enhancements to the Internal Revenue Service (IRS) § 45Q tax credit for CCS. The IRA marks a significant milestone in the deployment of CCS by providing substantial incentives to encourage CCS deployment. Early analysis suggests the IRA could increase the deployment of CCS by 13-fold by 2030 relative to the policies before the bill's passage. 

As background, section 45Q of the IRA tax code was enacted by § 115 of the Energy Improvement and Extension Act of 2008 to provide a credit for carbon dioxide sequestration. This section of the tax code was amended significantly by the Bipartisan Budget Act of 2018 and, most recently, by § 13104 of the IRA.

The IRS is developing guidance for implementing the IRA amendments to § 45Q. While the  IRS work is proceeding, the Biden-Harris Administration issued the IRA  Guidebook to investments in clean energy and climate action.  The Guidebook provides context around the section 45Q amendments that are crucial  to spurring CCS deployment.

  • The IRA expands the period of credit availability by extending the construction date from January 1, 2026, to January 1, 2033, thereby allowing for the ability to claim the credit for 12 years after a facility is placed in service.
  • The Act includes a production tax credit based on carbon capture and sequestration, injection for enhanced oil recovery (EOR), or utilization. 
  • The IRA increases entities' potential credit amount per ton by tying the credit amounts to meeting prevailing wage and apprentice requirements. For the facilities meeting these requirements, the credits are $85/tonne for industrial facilities that capture and sequester carbon dioxide; $60/tonne for carbon dioxide that is injected for EOR or utilized; $180/tonne for direct air capture (DAC) and storage of carbon; and $130/tonne for DAC carbon dioxide that is injected for EOR or utilized.
  • The IRA lowers the owners' threshold for captured qualified carbon dioxide: DAC - 1,000 tonnes, electricity generating facility - 18,750 tonnes (based on certain design criteria), and any other industrial facility - 12,500 metric tonnes.
  • The Act includes direct pay provisions. Corporate projects receive direct pay for the first five years after the carbon capture equipment is placed in service. Non-profit organizations and co-ops can receive direct pay for all 12 years of the credit. 

These increased tax credits for CCS provide hard-to-decarbonize sectors financial incentives to pursue decarbonization strategies that some may have found prohibitively expensive in the  past. The U.S. saw the immediate impact of the IRA on the deployment of CCS technologies. For example, West Virginia Power Ventures Inc. announced plans to build a multibillion-dollar natural gas power plant with carbon capture technology in September last year, saying the project would not be possible without the IRA. West Virginia Senator Joe Manchin noted the importance of the 45Q tax credit in the IRA, stating: "That makes the difference that makes a project like this work."

Likewise, OCI N.V. announced two projects in September that were made financially attractive due to the passage of the IRA's enhanced 45Q credits. OCI N.V. announced it will "start construction of a world-scale 1.1 million ton per annum blue ammonia project in Beaumont, Texas." OCI N.V. also announced in September that it had entered into long-term agreements with Navigator and Enerflex for a project to capture and sequester CO2 produced on-site at the Iowa Fertilizer Company (IFCo), a wholly-owned subsidiary of OCI N.V. The project is targeted to be complete by Q1 2025. Ahmed El-Hoshy, CEO of OCI N.V., commented: "The recently signed U.S. Inflation Reduction Act (IRA) increased 45Q credits from $50/mt to $85/mt, enhancing the attractiveness of the project economics and allowing for our team to commence work on phase two."

The IRA is undoubtedly a big step in the right direction for accelerating CCS deployment and will further encourage public-private sector collaboration on meeting global climate and energy goals.