Carbon capture affected by the coronavirus

Then, the coronavirus pandemic hit. Now, there’s a risk that much of that progress could stall.

Any roadblocks are delays that the technology’s supporters say it can’t afford. Carbon capture faces a time constraint. Projects must break ground by 2024 to qualify for federal tax incentives known as 45Q credits.

“What’s at risk here is a chunk of the first big installment of technology innovation and deployment that was the aspiration behind passing 45Q in the first place,” said Brad Crabtree, the vice president of carbon management at the Great Plains Institute. Crabtree helps convene the Carbon Capture Coalition, which brings together a broad swath of supporters, including coal producers, oil companies, utilities, labor unions, and environmental groups.

During the pandemic, carbon capture faces a double whammy.

The virus outbreak and associated economic fallout are squeezing investments for many energy projects, including carbon capture and storage. Tax equity markets, which the carbon capture incentives rely on, have largely frozen as many companies face capital losses that could carry over well into 2021 and even 2022, said Hunter Johnston, a partner with Steptoe & Johnson LLP.

Carbon capture projects require large, long-term capital commitments, a feat investors are less likely to undertake given current conditions with investment markets at a standstill, Johnston added.

The carbon capture industry, like much of the energy sector, is also grappling with another kind of demand destruction during the pandemic: a massive drop-off in oil demand and oil prices. An oversupply of oil, fueled by a price war between Saudi Arabia and Russia and exacerbated by starkly low demand for fuel, has prompted the lowest oil prices in decades. Those prices are likely to remain in the near term as the pandemic grounds planes, halts car travel, and keeps people hunkered down in their homes.

Some of the biggest developers of carbon capture currently are major oil and gas companies, which have had to slash capital expenditures as they face huge losses from the low prices. For example, Occidental Petroleum, one of the largest operators of carbon capture in the world, slashed its 2020 capital spending by more than $2 billion.

The company didn’t say whether those cuts would affect any of the carbon capture projects it has in the pipeline. In the last couple of years, Occidental has announced partnerships on carbon capture retrofits to ethanol plants, a commercial-scale natural-gas carbon capture facility, and a first-in-the-world commercial-scale direct air capture facility.

“We remain focused on creating long-term value through Oxy Low Carbon Ventures and will be responsible with capital through the changing market conditions,” an Occidental spokesperson told the Washington Examiner. Oxy Low Carbon Ventures is a subsidiary of Occidental.

“Strong engineering and technical work is where much of our near-term work is focused to ensure capital and operating efficiency for strategic investments going forward,” the spokesperson added.

Nonetheless, some analysts say it’s hard to imagine that the low oil-price environment won’t affect oil majors’ investments in carbon capture, as it’s likely to squeeze their overall budgets in the near term.

“The immediate demand for CO2 for EOR projects is not near what the demand is when oil is $60-$70 a barrel,” said Robert Mannes, president and CEO of Core Energy LLC. Core Energy is a small developer based in Michigan that operates 10 carbon capture and enhanced oil recovery projects in various stages of development.

“The economics on CO2 EOR get squeezed,” he told the Washington Examiner. “I don’t know how many companies in the country are actively looking for more CO2 or looking to start EOR projects at $25 a barrel for oil.”

The value of carbon dioxide sold as part of an enhanced oil recovery project is dependent on the price of oil, Johnston said. The lower the oil prices, the lower the returns companies will get on selling their carbon.

Any hurdles for enhanced oil recovery projects, however, are likely to be temporary.

“I think that when the oil price turns around, people will go back to doing what they were doing,” Mannes said. “Every company will have its own internal threshold for new project starts and for CO2 EOR projects specifically.”

Crabtree also suggested that many developers, including oil companies, are already pursuing carbon capture projects where deep saline storage is an option, burying the carbon deep underground without any link to oil production.

Carbon capture developers, like many industries, are looking to Congress for help weathering fallout from the pandemic. And targeted legislative tweaks to the federal tax credit program could help alleviate both challenges facing the carbon capture industry, supporters say.

The Carbon Capture Coalition is calling on lawmakers to include a “direct pay” option for the 45Q tax credits, essentially allowing project developers to bypass the tax equity markets to fund projects in the near-term. The group is also asking Congress to extend the 2024 deadline by which projects must begin construction in order to qualify for credits.

“The argument for it is very straightforward. Congress passed this incentive with the intent it work in a particular way,” but market conditions have since changed, said Rich Powell, executive director of ClearPath, a conservative clean energy group. So lawmakers “should tweak it so it works in the way it was intended,” he added.

Extending the deadline would also allow time for oil prices to rebound, thus bringing enhanced oil recovery project developers “back to the point where they can offer these competitive contracts for carbon capture,” said Nader Sobhani, a climate policy associate at the Niskanen Center.

Sobhani also argued that lawmakers should increase the value of the tax credits, which he said would be especially important to make other applications of captured carbon, such as in building materials or iron and steel manufacturing, more cost competitive.

There’s already some interest from lawmakers to help carbon capture in future relief efforts. Sen. John Barrasso of Wyoming, a top-ranking Republican who chairs the Senate environment committee, told the Washington Examiner in a recent interview that he’s looking for areas to support efforts such as carbon capture that have bipartisan backing.

“You need to have some flexibility there because it may not be possible, as a result of the coronavirus, to get those permits done in time and to get the project started on time,” said Barrasso, who helped pass the tax credits in 2018.

Overall, carbon capture advocates want to make sure the technology isn’t left behind as the United States looks to reboot its economy. They want parity with other energy technologies, including the renewable energy industry.

That may even lend itself to partnerships, as the clean energy sector is seeking similar policy requests of Congress, including a direct pay option and extended tax credit deadlines. Johnston said discussions are ongoing between the Carbon Capture Coalition and renewable energy groups about the challenges they’re facing.

“What we’re saying is that this is an important technology for the future,” Crabtree said. “There’s a real urgency and need to sustain this process of technology development and deployment in the marketplace.”