Recent amendments to section 45Q of the Internal Revenue Code of 1986, as amended (Section 45Q), have created new opportunities for energy infrastructure stakeholders seeking to employ carbon capture, utilization, and storage (CCUS) technology in the United States. CCUS is generally a process in which carbon dioxide (CO₂) is captured at its source rather than released into the atmosphere. The application of this technology allows CO₂ emissions generated from the operation of industrial manufacturing, power, or processing plants to be captured at the plants’ exhaust stack instead of discharged into the atmosphere. Separate, but similar, technologies are in development to capture and remove CO₂ directly from the ambient air rather than from the exhaust stack of an industrial source. As that technology develops, CCUS projects may start to incorporate direct air capture technology to harvest CO₂ for use, storage, or both in the same fashion as they use CO₂ captured from industrial processes. The captured CO₂ may be utilized to create or enhance the production of other forms of energy or products. Alternatively, the CO₂ may be permanently sequestered in an underground reservoir or formation.
In evaluating the scope of the opportunities for CCUS projects, it is interesting to note that the Energy Information Administration (EIA) reported that the United States reached a record high consumption of 101.3 quadrillion Btu from all energy sources in 2018. Such energy consumption is 4% greater than the U.S. energy consumption in 2017 and 0.3% above the previous record set in 2007. The EIA estimates that in 2017, over 1,500 million tons of CO₂ were released into the atmosphere by coal- and natural gas-fired plants in their efforts to meet energy demands. According to the EIA, approximately 76% of the total greenhouse gas emissions in the United States in 2018 were from burning fossil fuels.
CCUS technology will allow energy infrastructure companies to capture this CO₂ instead of releasing it into the atmosphere. As companies capture, separate, and store these volumes of CO₂, they will be supplying a new marketplace for CO₂ as a valuable commodity—one which their operations already produce in bulk as a byproduct. This captured CO₂ can be sold downstream to other CCUS project participants for utilization or monetized through storage using Section 45Q tax credits, as discussed below.
This paper will examine the following: (I) the Section 45Q federal income tax credit, (II) CCUS methods, applications, and select infrastructure, (III) the real property rights and related legal considerations for CCUS projects, and (IV) certain commercial and legal considerations surrounding the common arrangements necessary to conduct these operations.
