An energy solution with true bipartisan support

Two out of three respondents in a new University of Texas poll said energy issues are important to them. But the harsh rhetoric of campaign season makes it seem like politicians can never agree on important policies needed to provide safe, reliable and affordable energy while also protecting the environment.

Well they can, and they did. Right now in Washington, D.C., we have a bipartisan bill that would reduce carbon emissions and develop domestic energy resources.

The bill (S. 3581) introduced last month would modify an existing tax credit for using captured carbon dioxide for enhanced oil recovery (CO2-EOR).

What is CO2-EOR? It’s an oil production technique in which CO2 is injected deep underground to recover additional oil from already-developed oil fields. And it’s a proven strategy that will boost domestic oil production and create jobs while providing environmental benefits.

Selling captured CO2 for EOR provides an important economic opportunity for overcoming the high cost and risks of early carbon capture and storage (CCS) projects.

Why do we need CCS? Consider these facts:

  • World energy consumption is expected to grow by 50 percent in the next two decades.
  • We can expect coal, natural gas, and oil consumption to only increase to meet rising demand.
  • CCS technology can capture carbon dioxide from fossil fuel combustion and industrial processes and put it to economic use.

In fact, while most of today’s CO2-EOR depends on naturally-occurring carbon dioxide, any future expansion requires capturing more CO2 from man-made sources.

The bill introduced by Sens. Kent Conrad (D-ND), Mike Enzi (R-WY), and Jay Rockefeller (D-WV) proposes needed administrative modifications — with no fiscal cost — to the existing Section 45Q Tax Credit for Carbon Dioxide Sequestration.  The bill adopts consensus recommendations of the National Enhanced Oil Recovery Initiative (NEORI), a broad coalition pulled together by C2ES and the Great Plains Institute.  NEORI includes companies, environmental advocates, labor, and state officials looking to advance enhanced oil recovery using carbon dioxide captured from power plant and industrial sources.

The 45Q tax credit offers a $10 tax credit per man-made ton of CO2 stored through enhanced oil recovery, and a $20 tax credit per ton of CO2 stored in deep saline formations. A project may receive 45Q credits for up to 10 years, and the overall 45Q program is limited to providing tax credits for 75 million tons of CO2 across all projects.  While some of the 75 million tons of CO2 may be injected in deep saline formations, the vast majority is expected to be used for EOR. Therefore, the tax credit could result in the production of between 60 and 117 million barrels of domestic oil.

Why is 45Q reform needed? Due to uncertainties in the tax code and in the application process for 45Q credits, carbon capture project developers have no guarantee that they will be able to claim 45Q credits during the planning stages. As a result, the 45Q credit program has not worked as intended and carbon capture projects have been unable to count on receiving the credits when applying for financing. Additional certainty is needed to help several key carbon capture projects obtain private finance and begin construction.

S. 3581 addresses key uncertainties in the existing code and aims to establish a clear and transparent process for claiming the 45Q credits. It:

  • Establishes a new method to allocate and certify credits;
  • Clarifies that a taxpayer only has to own the capture equipment to claim the credits (and not the industrial facility as well);
  • Enables tax credit transfers; and
  • Prevents past tax credits from being recaptured if new environmental regulations are passed.

A complete explanation of the NEORI 45Q Modifications can be found here.

While political candidates debate such issues as the production tax credit for wind energy and the Keystone XL pipeline, the importance of CCS technology and the emerging potential of CO2-EOR are overlooked.  In fact, the 112th Congress has not passed major legislation to advance CCS technology. While the American Recovery and Reinvestment Act of 2009 provided $3.4 billion to speed the deployment of CCS, future federal support to complement this earlier investment has not been specified.  This is why NEORI calls for a new production tax credit to support CO2-EOR in addition to 45Q reform. (See the Bloomberg View editorial board’s endorsement of NEORI’s recommendation).

Upon introducing S. 3581, Senator Conrad stated that he was confident that his colleagues in the Senate would see the value of CO2-EOR. Overall, NEORI believes passing this bipartisan bill would represent an important first step for renewing federal support for CCS and helping improve our energy security while encouraging development of technology to protect the environment.