How to design better incentives for carbon capture and storage in the United States

Abstract:

Carbon capture, utilization, and storage (CCS) technologies trap carbon dioxide (CO2) from power plants and industrial facilities and either use or store it underground. Subsidies to support these technologies were an important component of the Biden Administration’s strategy to reach net-zero emissions by 2050 and offer a path for power plants to comply with US greenhouse gas (GHG) emission standards. Even if Biden-era GHG standards for power plants are repealed by the current administration, generous federal tax incentives may lead some power plants to deploy CCS anyway—and use at industrial plants in multiple sectors is already under way. Moreover, the staying power of federal support for CCS through multiple administrations with very different views on climate policy suggests that continued support is likely (note that at the time of this writing, the budget bills in both the US House of Representatives and the US Senate retain or even enrich subsidies for CCS, even while they cut those for most other clean energy technologies). Although deployed CCS capacity is small, the United States currently has more than any other nation. Fifteen US CCS projects already operate at commercial scale, and another eight are under construction.† Nearly all this new deployment is supported by a federal subsidy—the tax credit for CO2 sequestration under Section 45Q of the Internal Revenue Code—which was significantly increased in 2022 via the Inflation Reduction Act (IRA) (Fig. 1).