When the U.S. Congress passed its omnibus spending and COVID relief bill last month, plenty of people noted that it had a surprising amount for environmentalists to celebrate. Among the topline climate provisions: significant limits on a potent greenhouse gas found in refrigerants, new funds for wind and solar development, and an extension of the 45Q tax credit, which gives companies a tax break for capturing carbon.
There’s no doubt carbon capture is an industry in need of a jump start. If the world is going to meet its goal to keep temperature rise under 2° Celsius compared to preindustrial levels, everyone from the Intergovernmental Panel on Climate Change to the International Energy Agency agrees the world must capture and store much more carbon than we currently do. According to the IEA, we probably need to capture between 10 percent and 20 percent of the roughly 35 billion metric tons of carbon we produce annually if we want to prevent the worst effects of climate change.
Hardy Manges is Head of Municipal Dealer Sales at MarketAxess, responsible for new business development and strategy, training, and relationship management with dealers in the institutional municipal market.� Mr. Manges joined MarketAxess in February 2016 from Cantor Fitzgerald & Co. where he was Co-Head of the Municipal Debt Capital Markets Group.� Prior to that he was Head of Municipal Sales and Trading at Mitsubishi Securities.� He has extensive experience in secondary municipal market liquidity and trading and has held a variety of senior positions in the municipal divisions of Alex. Brown & Sons, BankersTrust and Deutsche Bank.� Mr. Manges received an M.B.A. in Finance from Loyola University Maryland and a B.A. in Economics and Spanish from Denison University. �
John Gallagher is Head of Municipal Bonds and U.S. High Grade Product Management at MarketAxess, responsible for managing Municipal Bond and U.S. High Grade product development.�Mr. Gallagher joined MarketAxess in 2002 following the acquisition of TradingEdge, Inc. which he had joined in 2000 with the responsibility for high yield and distressed debt sales. At MarketAxess, Mr. Gallagher was initially responsible for electronic trading product development for U.S. high-grade, high yield, U.S. Agency and emerging market debt markets. Mr. Gallagher also piloted the development and sales for MarketAxess’ first inter-dealer trading platform, DealerAxess�, as well as the launch of the firm’s credit derivatives trading platform in 2005. Mr. Gallagher began his career as a fixed income and mortgage-backed securities (MBS) trader and has an established track record in MBS sales and trading with senior roles at various broker-dealers such as Merrill Lynch and Nomura. Mr. Gallagher received a B.A. in Economics with a Minor in German Language from Fairfield University.
Bill Seguin is a researcher at Forrester Research.
Currently the world captures about 40 million tons a year — a mere tenth of 1 percent of our total annual emissions. The global carbon capture industry is so small, in fact, that the U.S., which has just a dozen commercial facilities working, is its undisputed leader.
There are many reasons why carbon capture hasn’t taken off, but the primary one is that it’s expensive, and for a long time there was no incentive for big emitters such as oil refineries or cement makers to invest in making the technology profitable. In theory, that changed in 2018, when Congress greatly expanded the 45Q tax credit to allow companies to deduct as much as $50 (up from $20) per metric ton of carbon captured and stored permanently underground.
But the expansion came with a catch: It applied only to projects that had begun construction by 2023.
Carbon capture projects are very complicated. According to the Carbon Capture Coalition (CCC), it takes about five years on average just to get permitting to begin construction.
You see the problem. In the two years since 45Q was expanded — with great expectations that it would inspire lots of new projects — none have launched. Brad Crabtree, director of CCC, said several dozen are in the development stage, but many of these are now at risk of being abandoned since COVID has depressed the oil and gas market.
So, Congress stepped in again. Not only did it extend the tax credit out to 2025, the funding bill also added about $2 billion to fund six projects to demonstrate real world operability of innovative new carbon capture technologies. Significantly, two of those are reserved for steel and cement plants, as opposed to utilities, where previous investments have led to big failures. Currently there’s only one steel plant in the world with carbon capture, in Abu Dhabi, and the first cement factory with carbon capture is set to be built in Norway.
What can taxpayers realistically hope to get from their investment? Crabtree said that it will be a good thing if roughly 30 new projects, nearly triple the country’s current capacity, become operational. While that won’t capture nearly enough carbon in the short run, it might be enough to nurture a struggling industry, much the way tax credits in the American Recovery and Reinvestment Act of 2009 helped accelerate wind and solar.
“The whole point of the credit is to prove the technology works and costs can be lowered so a virtuous circle of investing and building can begin,” Crabtree said. “We can then ramp up in 2035."