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02 June 2021
Jeremy Tonet, CFA
(1-212) 622-4915
jeremy.b.tonet@jpmorgan.com
CCUS Frequently Asked Questions
1) What is CCS/CCUS? Where are the CO2 assets in the US and what are they
used for? CCUS involves capturing, sequestering/storing, and sometimes utilizing
CO2 (CCUS vs CCS) created from industrial processes such as ethanol creation and
power generation. CCUS focuses on preventing CO2 from being emitted as waste
into the atmosphere. Carbon capture economics largely depend upon CO2 emission
purity, regulatory policy support, existing logistics, proximity to storage, among other
factors. High purity streams, such as from ethanol plants, represent much more
economic capture opportunities than less dense streams, such as open air capture.
According to the Global CSS Institute, plans for over 30 commercial projects have
been announced since 2017, and governments and industry committed over $4.5bn to
CCUS in 2020. Currently, there are 10 large scale operational facilities in the US used
to capture, with capabilities to permanently store CO2. The process begins with CO2
captured and compressed at a CCS facility. After the facility compression, the CO2
can move via pipeline, ship, rail, or truck for various end use applications or
underground storage. As of 2019, the US possesses 5,147 miles of CO2 pipelines,
with the majority of this infrastructure delivering CO2 for enhanced oil recovery in
the Permian Basin. These earliest pipelines in West Texas were built in the 1970s.
WY/CO, MS/LA, OK and ND also contain significant CO2 pipeline infrastructure.
See the appendix for a map of assets.
2) What legislative momentum does CCUS have? In 2020, Congress budgeted
$218mm towards CCUS, a sign of increasing positive momentum. According to the
IEA, CCUS has been slow to realize its full potential due to insufficient policy
support to drive CCUS innovation and deployment. Policy support similar to wind
and solar could spur technology and efficiency gains to drive down high costs, similar
to solar and wind. As the IEA details in their model, breaking down the cost of
carbon, capture, transportation, and storage can vary greatly, but in many applications
can be the most economic option to reducing emission in some applications, such as
cement production.
3) How does 45Q work and how could it incentivize carbon capture and logistics?
In 2018, President Trump signed a budget bill that enhanced and clarified 45Q tax
credits. To qualify for the tax credit, which covers 12 years, construction must begin
on an announced project by YE2023 (though this was later extended to 2026 in late
2020). The metric tonnage of CO2 captured directly impacts the amount of tax
credits. For CO2 utilized, such as in EOR, the tax credit offers $35/ton. For CO2
sequestered underground, the tax credit offers $50/ton. These tax credits have already
spurred additional investment, with 12 new large-scale facilities added to the
development queue in 2020 alone.
4) Where does the SCALE Act fit in? Whereas the 45Q works as a production tax
credit, the SCALE act can incentivize development as an investment tax credit. The
SCALE Act aims to ease the financing for CO2 storage hubs and increase funding for
CO2 storage wells, as well as connect capture and storage projects through the
creation of a carbon management market. The SCALE Act seeks to address the
foremost barrier to CCUS adoption, namely cost, through the development of a
Secure Geologic Storage Infrastructure Program that would build upon the
CarbonSAFE program, which currently protects geologic storage sites, to implement
DOE cost share for commercial CO2 storage hubs. Additionally, SCALE aims to
allocate grants to procure CO2 products for infrastructure development to local and
state governments to both create and address demand for captured carbon.