Multiple U.S. Energy Models Highlight the Importance of Incentives for CO₂ Capture Technologies

Frances Wood and Sharon Showalter at OnLocation co-authored a paper that was recently published in the journal Energy Policy titled “Could congressionally mandated incentives lead to deployment of large-scale CO₂ capture facilities for enhanced oil recovery CO₂ markets and geologic CO₂ storage?” The paper describes the results of a joint study performed in coordination with the Stanford University Energy Modeling Forum, an organization that promotes the use of energy policy models to improve the understanding of important energy and environmental issues. Other organizations involved in the study include the Pacific Northwest National Laboratory, the National Energy Technology Laboratory, the U.S. Environmental Protection Agency, and the Electric Power Research Institute. The study was performed using five energy models, including a customized version of the National Energy Modeling System created by OnLocation and referred to here as the CTUS-NEMS model.

As described in a previous OnLocation blog, the Bipartisan Budget Act of 2018 included several changes to the existing Section 45Q federal tax credits for CO₂ capture, utilization and storage (CCUS) aimed at making these technologies more economical. The enhanced 45Q credits are available for the first 12 years of operations for qualifying facilities that begin construction before January 1, 2024. But are these tax credits enough to promote the deployment of this new clean source of electricity?

The paper presents the modeling results of eight scenarios designed to examine the following questions:

1. What is the potential effect of the 45Q tax credits as written on CCUS deployment in the United States?
2. What level of CCUS deployment could occur if the 45Q credits are combined with additional technology research and development efforts to lower the costs and improve efficiency?
3. Would additional legislative changes to the 45Q credits expand the market for CCUS?
4. How much additional CCUS could be deployed if the 45Q credits are combined with an economy-wide CO₂ price on fossil fuels?

The study results are intriguing. Total CO₂ captured with the 45Q tax incentive reaches between 20 and 60 million tons of CO₂ per year over the 12 years that the incentive remains in effect, as reflected in the 2030 results across the five models illustrated in the chart. While some models had limited CO₂ capture capacity added in the reference scenario without the 45Q credits, these builds shifted to earlier in the time horizon because of the 45Q incentive and in most cases expanded. Coal power plant retrofits and industrial sources of CO₂ made up the majority of CCUS capacity built in the CTUS-NEMS 45Q scenario, and most of the captured CO₂ was used for enhanced oil recovery (EOR). When the 45Q credits were combined with a CO₂ price, CCUS deployment increased significantly, with model results ranging from 600 to 900 million tons CO₂ per year by 2030. These results and others presented in the paper highlight the importance of the tax credits, either alone or combined with another CO₂ policy, for improving the market adoption of CCUS technologies.

While developers have learned a lot about CCUS technologies based on existing projects, the industry is still considered to be in the early stages of commercialization. Targeted policies such as the 45Q tax credits are needed to make CCUS more economically attractive and move this industry toward a sustained path of development.

Click on this link to download the full report from the publisher’s website.

To learn about how OnLocation can help you explore issues related to energy technologies and policies including 45Q tax credits, or to learn more about the CTUS-NEMS model, visit https://www.onlocationinc.com/contact/.