A federal tax credit could incentivize (and accelerate) the reduction of greenhouse gas emissions

Austin (July 14, 2021)—A current federal tax credit to reduce greenhouse gas emissions by storing carbon dioxide from industrial sources could be critical to help the U.S. reach end of decade carbon neutrality targets while yielding economic benefits, particularly on the Texas and Louisiana Gulf Coast, according to a study by researchers at The University of Texas at Austin published today in Energy Policy.

The study suggests that a federal tax credit, known as the 45Q credit, could help increase the benefits, and thus development, of carbon capture, utilization and storage (CCUS) infrastructure because it compensates companies for capturing and storing CO₂ emissions. Participating companies could save as much as $60 million per year.

A Federal Tax Credit Could Incentivize (and Accelerate) the Reduction of Greenhouse Gas Emissions (UT News, July 14, 2021)

CCUS is a process that reduces the amount of carbon dioxide emissions entering the atmosphere by capturing and storing emissions underground in deep wells or by using them for industrial production such as green cement. Analysis of President Joe Biden's climate plan suggests that the U.S. will need to dramatically ramp up CCUS to meet end of decade carbon neutrality goals. Nevertheless, deployment has been slow. Although it is hypothetically feasible to reduce emissions from electricity generation and transportation by transitioning to renewables and electric vehicles, many industrial processes that require large amounts of energy — such as production of plastics, cement and steel — would take decades before non-fossil fuel energy sources are viable because of technical and economic issues.

In this paper, researchers from UT's LBJ School of Public Affairs, the Cockrell School of Engineering and the Jackson School of Geosciences estimate the costs of using CCUS to reduce greenhouse gas emissions from current and planned industrial facilities on the Texas and Louisiana Gulf Coast. These are primarily large industrial facilities engaged in oil refining, natural gas production and export, and petrochemical production.

At the high end, capturing carbon dioxide from new and planned facilities could produce economic benefits up to $4.6 billion per year in terms of avoided climate damage. Current benefits exceed government outlays for the 45Q tax credit, which are estimated at the high end to be $3.9 billion.

Industrial sources emitted 22% of U.S. greenhouse gases in 2018, and the long-run trend in industrial emissions continues upward. Prior studies have demonstrated a dramatic growth in expected industrial emissions in the U.S. Gulf Coast region through 2030, induced by the expansion of oil and gas production. The total annual emissions of the regional oil and gas infrastructure buildout may reach 541 million tons of CO2 equivalent by 2030, which was more than 8% of total U.S. greenhouse gas emissions in 2017 and about equivalent to the emissions of 131 coal-fired power plants.

"Carbon capture, utilization, and storage could provide a bipartisan solution to early gains in carbon reduction as it potentially slows climate change and provides an opportunity to keep and even grow jobs from an important economic sector in the region and the economy as a whole." —Andrew Waxman

International Energy Agency models have shown that to meet midcentury carbon neutrality, CCUS will need to provide at least 9% of cumulative emissions reductions. Yet fewer than 20 large-scale facilities were operating worldwide as of 2019.

Louisiana and Texas are specifically well positioned to examine the potential cost-effectiveness of carbon capture and storage for three reasons. First, the northwest Gulf Coast is broadly suitable for onshore and offshore geologic sequestration and has existing large-scale CCUS facilities. Second, the region has a large and growing collection of industrial activity with CCUS potential: seven of the eight largest U.S. refineries and the vast majority of current and expected future U.S. liquefied natural gas export capacity are on the Texas and Louisiana Gulf Coast, according to the U.S. Energy Information Administration. Third, tax credits from 45Q are scheduled to ramp up significantly between now and 2030, coinciding with the expected expansion in regional industrial emissions. Large energy companies also seem to be embracing the technology. For instance, Exxon Mobil rolled out an ambitious CCUS agenda in April, and Chevron has also made key investments recently.

"CCUS could provide a bipartisan solution to early gains in carbon reduction as it potentially slows climate change and provides an opportunity to keep and even grow jobs from an important economic sector in the region and the economy as a whole," said Andrew Waxman, a study author and an environmental economist at the LBJ School of Public Affairs.

Researchers did not consider the additional cost savings provided by Texas and Louisiana state policies in the form of sales tax exemptions, severance tax reductions and other incentives.

This report was supported in part by a grant from the Austin-based Cynthia and George Mitchell Foundation.

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