U.S. climate bill’s subsidy bonanza gives new push to carbon capture

U.S. companies that cut carbon emissions could qualify for subsidies on even the smallest projects under new climate legislation, unleashing a potentially unprecedented wave of investment in green technologies. 

The Inflation Reduction Act passed by Congress this month will boost a host of clean technologies. Among them will be startups developing more efficient ways to capture and store carbon, which is going to be crucial to meeting global climate goals.

The technology either involves collecting carbon dioxide emitted by a factory, a method that’s been around for decades, or taking it directly from the air and then storing it underground. One of its biggest drawbacks has been the cost. And while the U.S. already had a tax credit to support carbon capture, it was too paltry to attract much interest from industry and only available to larger operators.

Under the new regime, the U.S. government will offer a tax credit of $85 for every metric tonne of carbon emissions captured from a smokestack and stored — up 70 per cent from current levels. Industrial projects, such as factories that produce steel or cement, need to capture 12,500 tonnes or more of CO2 a year to qualify, down from 100,000 tonnes a year under the previous system. Direct air capture qualifies for tax credits worth as much as $180 per tonne for projects that trap as little as 1,000 tonnes of CO2 per year. And the credits will be paid directly to the operator, providing a clear source of revenue even for relatively small installations. 

With all that new support, American companies could be capturing around 100 million tonnes of carbon dioxide a year within a decade, more than 10 times the amount currently sequestered for tackling climate change each year, according to Boston-based environmental organization Clean Air Task Force. 

With new projects launching this year, researcher BloombergNEF estimates the most ambitious climate law in U.S. history could deliver more than $100 billion to scale up technology, decarbonize industry and provide clean power.

“It used to be you had to be a really large CCS plant to claim the tax credit. The numbers now are so low,” said Julia Attwood, analyst at BloombergNEF. “That’s a big boost. It means very small facilities just testing out their technology can access it.”

The tax credit is also crucially directed more toward industrial applications than power plants. That means it’s harder for coal or natural-gas burning plants — power sources that could be directly replaced by solar or wind farms — to qualify for support. Instead, industries such as cement production, which currently have no alternatives to cut emissions, can more easily access the assistance. 

“These industries that really need to use carbon capture as their decarbonization strategy finally have the option,” said Matt Bright, carbon capture policy manager at Clean Air Task Force. “It’s opening a new market for hard-to-abate industrial sectors.”

© 2022 Bloomberg L.P.

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