Project permitting is set to be one of the biggest barriers to the US administration’s drive to stimulate a carbon capture and storage (CCS) industry.
This month’s passage of the Inflation Reduction Act through the House of Representatives will be a huge boon to the nascent CCS sector, creating the fiscal platform for investors to fund CCS as well as direct air capture schemes.
This legislation is offering what are known as Section 45Q tax credits from the Internal Revenue Service at a rate of $85 per tonne of carbon dioxide captured and stored.
Speaking during a net-zero session at ONS 2022, Brent Lewis, chief executive of Colorado-based CCS developer Carbon America, said the problem is that there are not enough staff at the Environmental Protection Agency (EPA) to handle the expected rush for permits.
“The EPA is going to have trouble approving permits [for CCS projects],” Lewis said.
“We anticipate there will be a bit of a rush from developers for sequestration sites and most of these sites are going to have to be reviewed and approved by the EPA. There will be a bottleneck.”
Lewis described the CCS sector as “very complicated” with three interdependent asset classes — capture, transportation and storage — each with their own challenges.
“Stringing all those together is extremely challenging,” he said.
In a previous career, Lewis recalled that financing a gas-fired power plant was previously “the hardest thing I had ever done” but pointed out that CCS “makes that look like child’s play — it’s really hard”.
He said the capture plant is the most important element of a CCS scheme in the US because it essentially underpins cash flow derived from Section 45Q.
While the $85 tax credit will not be enough to support all CCS projects, Lewis believes it will “open up an addressable market that’s 100 times what is was”.
He does not think raising capital will be the biggest challenge, and highlights how “getting deals done” will help “create a playbook” and help “educate” Wall Street and financial providers about the risks.
Another challenge in certain parts of the US could be securing insurance given that, for example, current legislation in California makes carbon sequesterers liable for carbon leakage for 100 years.
“That’s a long-term liability. It’s very, very difficult to quantify and to get insurance for.”