A major increase in federal tax credits has been included in the Democrats’ 2022 climate program as a spur to build thousands of miles of carbon dioxide pipelines in the Midwest.

Opponents of liquid carbon pipelines rally Nov. 9, 2022, in Cowles Commons in downtown Des Moines, Iowa. (Source: Kansas reflector)

Tax Credits for Carbon Dioxide Capture Projects

Even though the plans are likely to lead to contentious disputes between local landowners and developers regarding the placement of pipelines on their properties, the influential Midwest ethanol industries may stand to gain billions of dollars per year from federal tax credits as a result of the carbon dioxide pipeline, news from Kansas Reflector.

According to Sasha Mackler, the executive director of the Center on Energy Policy at the nonpartisan Bipartisan Policy Center, the tax reforms provided incentives for larger-scale regional pipelines. Although it has been less than a year since Congress passed the law, the changes have sparked a great deal of interest among the states that produce the majority of the country’s ethanol, according to him.

In the development community, it has undoubtedly sparked a ton of passion and action, he claimed. “It’s very safe to say that commercial activity around carbon capture has significantly increased.” The climate law, which is regarded as the largest U.S. effort to combat climate change to date, included tax credits for several renewable energy projects, including a significant expansion of tax credits for carbon dioxide pipeline projects through carbon sequestration, a method of capturing carbon emissions from industrial processes.

The credit per metric ton of carbon buried underground was increased by the 2022 law from $50 to $85 per ton. A building deadline was also extended, direct payment of the credit was permitted, making it easier for businesses to benefit, and other adjustments were made to encourage carbon storage.

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Ethanol Industries on Carbon Capture

During the fermentation process a component of ethanol manufacturing, carbon dioxide is emitted. Compared to other businesses, that byproduct is a reasonably pure form of carbon dioxide that is simple to transport. Since it is simple to transport, carbon sequestration in the industry has long been less expensive than in coal power plants, the production of concrete, or other industries.

According to a report from the sustainable energy organization Energy Futures Initiative, the cost of sequestration to ethanol producers ranged from roughly $36 to $41 per metric ton, therefore the $50 tax credit was typically already lucrative for the sector. However, pricing varied case by case, depending on elements like the required carbon dioxide pipeline’s length, Mackler noted. More bids are lucrative thanks to the $85 per ton credit, which serves as an additional incentive.

In the Midwest, where abundant corn crops helped create the center of domestic ethanol production, the expanded tax credits present “a large economic opportunity” to retrofit or build new ethanol facilities through carbon dioxide pipeline, according to Joseph Hezir, executive vice president with Energy Futures Initiative, who spoke at a late-June event organized by EFI and the environmental issues think tank Resources for the Future.

Producers may decide to build out carbon sequestration infrastructure if they believe the potential benefits outweigh the challenges, such as opposition from landowners against carbon dioxide pipeline development, he said. It will be difficult to transport that carbon dioxide once it has been captured to a location where it can be sequestered, according to Hezir. But the economics are promising and compelling enough for businesses to start pursuing that.

The specific businesses proposing carbon dioxide pipelines might receive annual tax benefits worth billions of dollars, even if it is difficult to ascertain the entire extent of the tax credit. According to Summit Carbon Solutions, the project could permanently store 18 million tons of carbon dioxide each year. The company has proposed a pipeline network that would link 34 ethanol plants in Iowa, Minnesota, Nebraska, South Dakota, and North Dakota and deposit carbon dioxide in underground storage in North Dakota. At $85 per ton, the sequester tax credit would provide $1.5 billion annually.

Another business, Navigator CO2 Ventures, says it could transport and store up to 15 million tons of carbon dioxide annually, earning $1.3 billion in tax credits. This company is requesting permission to construct pipes across Iowa.