Thousands of miles of carbon dioxide pipelines that were planned in the Midwest have been pushedin part, from a major expansion of federal tax credits in the Democrats' 2022 Climate Act.
That could lead to billions of dollars a year in federal tax credits to benefit the powerful Midwest ethanol industry, even as the proposals create intense conflict between developers and local landowners worried about pipelines on their property.
Some critics also say it will be hard to tell how much the federal government spends on the tax credits and whether they are actually earned by the companies claiming them. There are also questions about whether the pipelines will affect both carbon removal and climate change slowing.
The tax changes created incentives for larger regional pipelines, said Sasha Mackler, executive director of the Energy Policy Center at the nonprofit Bipartisan Policy Center.
Less than a year since Congress passed the law, the effect is hard to quantify, but the changes have generated huge interest in the nation's ethanol-producing states, he said.
“It's certainly created a tremendous amount of excitement and activity in the development community,” he said. “It's pretty safe to say there's been a significant uptick in commercial activity around carbon capture.”
Among the tax credits for various clean energy programs in the climate law, considered the biggest U.S. effort yet to tackle climate change, was a major expansion of tax credits for carbon sequestration, a technique of removing carbon emissions from industrial processes.
The 2022 law increased the credit from $50 to $85 per metric ton of coal stored underground. It also extended a construction deadline and allowed for immediate payment of the credit—making it easier for companies to take advantage of it—and made other changes that encouraged carbon storage.
Ethanol byproduct
Carbon dioxide is released during the fermentation process that is part of ethanol production. This byproduct is a relatively clean—and easy to transport—form of carbon dioxide, compared to other industries.
Because the ethanol byproduct is easy to move, carbon sequestration in industry has long been cheaper than in coal-fired power plants, concrete manufacturing or other sectors.
Bond costs for ethanol producers range from about $36 to $41 per metric ton, according to a report from the clean energy group Energy Futures Initiativemeaning that the $50 tax credit was already profitable for the industry in most cases.
But costs vary on a case-by-case basis, depending on variables such as the length of a pipeline needed, Mackler said. The $85 per ton credit provides even more incentive and makes more proposals profitable.
The expanded tax credits provide “a great economic opportunity” to modernize or build new carbon-sequestering ethanol facilities in the Midwest, where abundant corn crops have helped create the center of domestic ethanol production, said Joseph Hezir, Energy's executive vice president. Futures Initiative. at an event in late June organized by EFI and environmental think tank Resources for the Future.
Producers may judge that the potential benefits outweigh the difficulties — including resistance from landowners opposed to building pipelines — to build carbon sequestration infrastructure, he said.
“Being able to move that CO2 once you've captured it to a place where you can sequester it is going to be a challenge,” Hezir said. “But the economics look promising and enough incentive for companies to want to start pursuing it.”
While the full scope of the tax credit is difficult to determine, individual companies proposing coal pipelines could see billions of dollars in annual tax benefits.
Summit Carbon Solutions, which has proposed a pipeline network that would connect 34 ethanol plants in Iowa, Minnesota, Nebraska, South Dakota and North Dakota and store carbon dioxide in underground storage in North Dakota, says the project could permanently store 18 million tons of carbon dioxide per year.
At $85 per ton, that would equate to $1.5 billion a year from the sequestration tax credit.
Navigator CO2 Ventures, another company seeking permits to build the pipeline across Iowa, estimates it could transport and store up to 15 million tons of carbon dioxide annually, which would earn $1.3 billion in tax credits dollars.
Transparency issues
In theory, climate scientists say incentivizing carbon sequestration is good policy. It is one of many climate solutions that major economies like the United States must use in combination to meet international climate goals.
“To meet all of our global climate goals, we both need to rapidly scale up renewable energy, but then we also need to address the legacy carbon that's in the atmosphere,” said Daniel Sanchez, professor of bioenergy at the University of California-Berkeley. “We need all these tools at our disposal in order to effectively liberalize the transport sector.”
But critics say it's hard in practice to tell exactly how much taxpayer money has been spent on carbon sequestration credits — or whether the credits are going to facilities that are successfully removing carbon.
Companies must meet U.S. Environmental Protection Agency standards for underground carbon storage to qualify for the credit. But the agency and the Internal Revenue Service don't have enough staff to verify that the companies claiming the credits are earning them, said Jim Walsh, policy director for the advocacy group Food and Water Watch, which opposes the tax credits for carbon sequestration.
“These tax credits are shrouded in secrecy and ripe for corruption with no public oversight,” he said.
Carbon sequestration alone is not an effective strategy to combat climate change, Walsh said. Pipelines and storage wells may leak carbon, but even without those problems, sequestration is a half-measure, he added.
“The only way we're going to deal with the climate crisis is to stop fossil fuel development and phase out fossil fuels quickly,” he said.
Carbon storage and other technologies that boost fossil fuel use are counterproductive, he said.
“This leaves us with many solutions that will waste money while enriching powerful interests and undermining our ability to deal with the climate crisis in a meaningful way.”
Most climate scientists, however, say carbon sequestration is part of a long-term solution.
The most recent report by the United Nations Intergovernmental Panel on Climate Change predicted that meeting the mid-century climate goals would require sequestering 6 gigatonnes of carbon dioxide.
Federal spending on carbon storage recognizes that the U.S. economy relies heavily on fossil fuels, Mackler said.
“From a climate perspective, fossil fuels are not the problem,” he said. “The problem is emissions from fossil fuels. And so if we can develop a path to continue using at some scale, especially with the oil and natural gas that we exploit to power our economy, if we can use it in a way that doesn't harm the climate, that's fantastic.”
