Carbon Capture and Sequestration in 2021: The Path Forward

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2021 is already poised to offer substantial growth in the area of carbon capture and sequestration (“CCS”). On January 21, Elon Musk announced on Twitter that he will donate $100 million to the “best” carbon capture technology, chosen through a competition whose details and judging criteria are yet to be announced. In addition, recently passed federal regulations are expected to encourage more private investment in CCS projects

The Consolidated Appropriations Act 2021 (“H.R. 133”), which was signed into law by former President Trump on December 27, 2020, contains notable bipartisan energy initiatives, ranging from new and extended tax incentives to government programs for research and development for CCS projects. One such initiative authorizes the establishment of a Carbon Capture Technology Program within the Department of Energy’s Office of Fossil Energy.  This program will manage the development of transformational technologies in an effort to reduce emissions in the fossil fuel industry as well as in manufacturing and industrial facilities. The program will use research and development, large-scale and small-scale pilot projects and demonstrations, and a front-end engineering and design program. As part of this pursuit, the Department of Energy will enter into cooperative agreements with industry and other stakeholders for the construction and operation of six demonstration projects for carbon capture at coal electric generating facilities, natural gas electric generating facilities, and industrial facilities.

H.R. 133 also extends the Internal Revenue Code Section 45Q (“Section 45Q”) tax credit program for CCS projects by two years, giving developers of carbon capture projects until the close of 2025 to commence construction on projects eligible for the credit.  Section 45Q provides a tax credit per metric ton of qualified carbon oxide captured and disposed of pursuant to detailed provisions in both Section 45Q and the accompanying regulations.  An upcoming Energy Law Blog post will cover these provisions as well as the most recent Section 45Q regulations issued on January 6, 2021.

These new regulations are likely just the beginning for the advancement of CCS this year as widespread support for CCS is expected from the new Biden Administration. While specific CCS policy measures have yet to be announced, President Biden signed an executive order on climate change. This executive order establishes, among other things, an Interagency Working Group on the Social Cost of Greenhouse Gases, which will publish interim social costs for carbon dioxide and recommend areas of decision-making, budgeting, and procurement where the social costs should be applied. CCS is also expected to play a role in meeting greenhouse gas reduction targets under the Paris Agreement, which President Biden recommitted the United States to through an executive order signed on his first day in office.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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