Carbon Capture Business Case Requires Showing Strategic Value

The US Department of Energy recently canceled $3.7 billion in previously announced awards for low-carbon projects that the department declared were “not economically viable,” many of which involved carbon capture technologies. The narrative that immediately followed suggests major new headwinds for carbon capture.

That simply isn’t the case.

It’s fashionable in Washington, D.C., to overreact to such announcements. And although this one may be a setback for some projects, it confirms that projects must deliver a strong business case and be commercially viable.

We often hear carbon capture described as “carbon capture and storage,” or CCS. But for more than half a century, the business case for capturing CO2 has primarily been in the oilfield. Captured CO2 is injected into depleted oil wells to enhance the flow and bring more energy to the surface, a process known as enhanced oil recovery, or EOR. This is often described as “utilization” of CO2, which expands the acronym to CCUS.

To commercially scale carbon capture, it must be CCUS.

Why? Because in addition to greater oil production, each barrel produced through EOR has a 37% lower carbon intensity. That means producing more of the fuel that is foundational to a modern economy—and doing it right here in the US, with less pollution.

Unsurprisingly, the foundational tax credit for CCUS projects, known as Section 45Q, has survived decades of budget discussions in Congress. This credit isn’t a handout but is earned through successful performance.

To earn these credits, companies must:

• Capture and store CO2 safely and permanently
• Apply for and secure injection well permits from the Environmental Protection Agency or the relevant state regulatory office
• Meet strict IRS-set guidelines for measuring, monitoring, and verifying the stored CO2

Only then does a company earn the credits, and that’s only for each ton of CO2 successfully captured and stored—permanently and safely.

For some, projects can pencil out for a “pure storage” enterprise in which CO2 is captured and stored for the purpose of producing a decarbonized product or to reduce one’s overall carbon footprint. This isn’t just virtue signaling, either.

Many companies have investors and customers around the world demanding products with a lower carbon intensity. Because it uses stored carbon to generate the tax credit, it’s CCUS.

Thanks to the 45Q incentive, these projects have strategic value to investors and are supported by paying customers. The more than 270 announced CCUS projects in the US reflect such value and customer interest.

As the recent award cancellations from DOE indicate, however, the days of the federal government simply handing out money are over. This isn’t to say all the projects impacted by the cancellations lacked viability. But moving forward, applicants for federal dollars need to better separate themselves from projects that are built solely around such grants.

With EOR, the differentiated story is obvious: the additional value creation of producing more US energy while also ensuring CO2 is captured and stored instead of emitted.

Beyond EOR, lower carbon intensity products in fuels and chemicals help future-proof American industry and expand markets for our exports. Meeting the growing demands of electrification in our society also requires meeting the customer demands of low-carbon electricity for the power sector. Recent research from the Oxford Institute for Energy Studies found that natural gas power plants equipped with CCUS technology can produce more affordable electricity than renewables paired with storage.

These are market-driven investments, not government mandates.

All energy technologies benefit from the support of DOE and other federal agencies. CCUS infrastructure requires timely and effective permitting, pipelines and electric transmission lines, and water access.

For newer applications of the technology on power plants and heavy industrial sites—such as chemicals or cement—DOE provides critical research and funding support. But there is only so much the federal government can, or should, do to advance this or any other technology.

We must challenge ourselves to build projects that have strategic value for investors and customers who desire what CCUS can deliver. Government handouts aren’t a business case.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Charles McConnell, a former Assistant Secretary of Energy, serves as the executive director of the Center for Carbon Management in Energy at the University of Houston.

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