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The IRA and CCS Development, Explained

Updated: Dec 29, 2023

The IRA and CCS Development, Explained

What is CCS?

CCS stands for Carbon Capture, and Storage. It refers to a number of different processes where CO2 (carbon dioxide) that is produced as part of energy generation or a waste product from industrial processes is diverted from entering the atmosphere. It can also be directly captured from the atmosphere in a process called Direct Air Capture(DAC). This is the carbon capture part of CCUS/CCS (Carbon Capture & Storage)

Once the carbon is captured, it can be dealt with in a number of ways. Carbon storage involves pumping the CO2 into the ground, thus permanently removing it from the atmosphere. Carbon utilization refers to a number of processes which use captured CO2 to avoid using other compounds. One such process is Enhanced Oil Recovery (EOR), which injects CO2 instead of water or other fluids into oil and gas wells to increase oil recovery, partially sequestering the carbon dioxide. Other examples of utilization may involve using CO2 as a feed stock to industrial processes that have been adapted to this purpose. 

What is the IRA?

The Inflation Reduction Act is a bill that introduces large scale changes to many sectors of the US economy, and has made some major changes to CCS and the 45Q tax credit while providing more money and easier access to funds for processes that reduce carbon emissions. The impact of the IRA on energy markets extends far beyond its implications for CCUS and carbon capture practices.

How has the IRA changed things for CCS?

The IRA has made getting paid for CCS activities easier and more profitable. Primarily it has increased the value of a 45Q credit, which is a tax credit that sets a sort of commodity price on CCS activities; it can be thought of as a CO2 sales price. Essentially, the IRA has increased the sale price of a tonne of CO2 to anywhere from $60 to $180, with the exact price depending on both the source of the CO2, and the injection/utilization method.

The source looks at whether the carbon was captured from industrial processes and energy generation, or from DAC. The injection portion looks at how the captured CO2 is dealt with, whether it is stored permanently in a Class 6 well, or utilized for additional oil recovery in a Class 2 well, or utilized in some other industrial process.

US Code 45Q is the credit for carbon sequestration introduced in the 2008 tax code and is intended to provide tax incentives for CO2 storage, carbon capture efforts, CCS, and more. The IRA provides for amendments to Code 45Q as it relates to CCS.

  1.  Increased Payments: The IRA increased the value of 45Q tax credits, providing a stronger financial incentive for storing carbon dioxide.

  2. Payment for carbon captured from industrial and power generation facilities and stored in saline geologic formations increased to $85 from $50/tonne.

  3. Payment for carbon captured from industrial and power generation facilities and utilized in EOR or other industrial processes increased to $60 from $35/tonne.

  4. Payment for carbon captured through DAC and stored in saline geologic formations increased to $180 from $50/tonne.

  5. Payment for carbon captured through DAC and utilized in EOR or other industrial processes increased to $130 from $50/tonne.

  6. Lower Requirements: In order to qualify for 45Q tax credits, facilities have to meet certain requirements and emit a certain amount of carbon dioxide. The IRA has extended the number of facilities that would qualify for 45Q tax credits. 

  7. Power Generation facilities will now be eligible for credits if they emit 18,750 tonnes of CO2 per year, down from 500,000. 

  8. Industrial Facilities have decreased from 100,000 to 12,500 tonnes of CO2 emitted per year. 

  9. Direct Air Capture Facilities are now only required to capture 1,000 tonnes of CO2 each year, instead of 100,000 tonnes. 

  10. Extended Credit Availability: The credit is now able to be claimed for 12 years past the date of installation, and facilities that begin construction prior to 2033 are now retroactively eligible to receive the credit.

  11. Direct Repayment: Carbon capture project developers can now receive 45Q as a fully refundable direct payment as if it were an overpayment of taxes. For-profit, tax-paying entities can only realize the direct pay option for five years after the carbon capture equipment is placed in service. After which they will need to sell credits if the amount of credits exceeds their tax burden. Tax-exempt entities such as states, municipalities, Tribes, and cooperatives can realize the direct pay option for the full 12 years after the carbon capture equipment is placed in service.

What is DAC?

Direct Air Capture is an industrial process that removes carbon dioxide from the atmosphere by passing air over a compound that binds carbon dioxide and removes it from the air. The CO2 can then be removed from that compound and stored for later use, or permanently sequestered in the ground. The compound can then be recycled and used to capture more CO2. LandGate’s CCS PowerVal tool can account for the economics of using different CO2 sources.

What land data is needed to conduct CCUS/CCS projects under the IRA?

A large amount of data is needed: geologic data to find suitable formations to inject CO2 into, data on surrounding wells to determine if any of them qualify for EOR, data on the surface such as distance to CO2 pipelines or CO2 capture facilities, landowner information for contacting surface rights holders. All these datasets and more are potentially needed, but LandGate makes it easy to find and use all in one place. Our suite of tools provides full engineering support for any CCS project, and the most comprehensive datasets available.

What’s the difference between utilization and storage?

First, it is crucial for developers to distinguish between opportunities for CO2 utilization and opportunities for CO2 storage. 

Storage is permanent geologic sequestration. The carbon dioxide is pumped into underground reservoirs and monitored to avoid any emissions from the wells. The carbon dioxide has been removed from the atmosphere and from the carbon cycle.  Utilization can mean different things. It can be utilized for Enhanced Oil Recovery (EOR), where it is pumped into the ground in order to improve oil and gas production in other wells. If CO2 is used as the injection fluid it can potentially be stored in the reservoirs, which can offset some of the hydrocarbon compounds being extracted. Or it can be used as a feedstock for industrial processes that need carbon. Current advances in concrete production are starting to use captured CO2 as part of the concrete production or curing process. 

LandGate’s PowerTools suite for CCS Solutions provides detailed data on all Class II and Class VI wells where CO2 is injected, as well as all facilities across the United States that utilize CO2.

What’s the difference between Class 2 and Class 6 wells?

Wells are classified according to specific criteria and for specific purposes. Each well will have different permitting requirements. Class 6 wells, occasionally written as Class VI, are used to inject carbon dioxide into deep rock formations, as part of a process called Geologic Sequestration, this is done solely to reduce CO2 emissions in the atmosphere and mitigate climate change. Class 2 wells, occasionally written as Class II, are wells used for enhanced oil recovery, disposal of waste fluids, and storage of liquid hydrocarbons. Only wells used for EOR would qualify as CCS. LandGate can provide data on all wells across the US, and offers the ability to search and filter for the criteria most important to any given CCS project. 

The commodity price of CO2 will change depending on whether the CO2 is injected in a Class 2 or Class 6 well. A Class 2 well will be paid either $60 or $130, depending on the CO2 source, while a Class 6 well will be paid either $85 or $180.

How do I find land appropriate for CCUS/CCS?

In order to manually locate land appropriate for CCS, in-depth geologic surveys would need to be conducted followed by a manual search for current landowner information and cold calls. Alternatively, LandGate’s CCS PowerVal tool can evaluate any property across the United States within seconds for its CCS potential, and then help connect you directly with the landowners willing to work with you.


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