Congress needs to prod the IRS to capture carbon
Congress authorized the expansion of tax credits for carbon capture back in 2018. But the Internal Revenue Service has still not released important details about the way it is interpreting the revisions to Section 45Q of its code. The resulting uncertainty is preventing investors from committing to major carbon capture projects.
Investors want assurance that their participation in carbon capture ventures will be eligible for the credit, which cannot happen until the IRS releases guidelines on how to implement carbon-capture technologies and facilities in ways that qualify for the tax benefits. The IRS released some relevant guidance in late February, but it did not resolve a number of key issues. Ernest Moniz, a former energy secretary and an MIT physicist, said that in the wake of “two years of doing nothing,” the newly released guidance is “[t]otally inadequate.”
Major aspects of the application of the tax credit are still unclear, especially the particular uses of sequestered carbon that qualify and the definition of “secure geological storage.”
These delays have significant consequences for dealing with climate change. A known stipulation in the tax code states that to receive tax credits for a carbon-capture facility, construction must begin before 2024. While that seems far off, this rule is creating pressure to completely finalize all plans for funding, design and legal aspects faster than may be possible for many projects. Some complex and large-scale projects – the ones that would be doing the most to combat climate change – may be scrapped altogether, because they might unable to meet the deadline. A considerable number of businesses are ready to begin carbon-capture projects. According to Bloomberg Tax, potential investors are sitting on $500 million, just waiting for the guidelines to be issued.
There is a wide consensus that we need to decarbonize the economy. Many plans to advance this goal call for measures that will cause great “pain.” Consumers and businesses will need to buy new technologies after having invested in older but still viable ones. The costs of technologies that emit carbon will increase, including everything from cars and planes to freights. New taxes will have to be introduced to pay for the new measures. Supporters of this approach to de-carbonization argue that this pain is unavoidable given the magnitude of the threat climate change poses. And they hold that in the long run the huge costs will be covered by savings. For instance, we shall no longer have to spend scores of billions of dollars on rebuilding flooded cities or burned-out towns, or to cool overheated parts of the world.
Although there is a considerable measure of truth in these claims, one cannot ignore the fact that the public has to be willing to put up with the high level of pain entailed in the suggested measures — and it is far from clear that such a willingness can be engendered. Hence, to reduce the pain, we should increase investment in finding ways to capture carbon, as opposed to measures to cut emissions, because the implementation of carbon-capture policy is much less painful than policies to cut emissions. Carbon capture does not entail forcing people and businesses to give up much of anything or change their lifelong habits.
I cannot stress enough that both capture and emission cuts are necessary given the magnitude of the problem. And it makes little sense to drain carbon if new carbon will just flood in to replace that which has been removed. But one can adjust the balance of strategies used and rely relatively more on capture to make the needed changes more tolerable.
Carbon captures are technologies that remove carbon from the air. Carbon is captured by living organisms (and, increasingly, artificial ones) and converted into biomass or carbon. Often, it is trapped as it is emitted, pressurized and then stored in the ground or in the ocean.
Forestation is a great way to capture carbon and emit oxygen, but this is a relatively costly and slow process. Preventing deforestation, especially in countries such as Brazil, is an important way to fight climate change, but that alone cannot capture nearly enough carbon.
Carbon capture technologies can capture 90 percent of carbon dioxide produced by fossil fuels. A 2019 report by the Clean Air Task Force report finds that if carbon capture technology was used across the U.S. energy sector, 49 million tons of carbon dioxide would be removed from the air by 2030 — the equivalent of seven million cars being taken off the roads.
The investment credit that Congress provided is a step in this direction. If the IRS needs help to get going, there are strong reasons for Congress to step in and help it get off its duff.
Amitai Etzioni is a university professor and professor of international affairs at The George Washington University. His latest book, “Reclaiming Patriotism,” was published by University of Virginia Press in 2019 and is available for download without charge.