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US industrial sources of CO2 remain untapped: analysis

23 February 2022 Amena Saiyid

Industrial sources, though the third largest source of CO2 emissions in the US, remain an untapped avenue for carbon capture and storage (CCS) despite the presence of tax credits to incentivize activity, although that may change, Net-Zero Business Daily analysis of emissions shows.

The US Environmental Protection Agency, which tracks GHG emissions across each economic sector, reported that industrial sources were responsible for 16%, or 789.3 million metric tons (mt), of total CO2 emissions in 2019, with more than half arising from the manufacturing of steel, cement, and basic chemicals.

But data show that just about 1.2%, or an average of 23-25 million mt of CO2 emissions, are being captured each year at the 12 operational CCS facilities linked to industrial sites.

Why there are not more facilities operating currently is because US Congress reformed the 45Q tax credit and increased its value to $50/mt in 2018, "and it took the US Internal Revenue Service (IRS) an additional three years to deliver guidance on how to claim the tax credit," Lee Beck, international director for carbon capture at the environment nonprofit Clean Air Task Force (CATF), explained to Net-Zero Business Daily.

Tax credit not enough of an incentive

But that's not the only reason, observed IHS Markit Principal Research Analyst Paola Perez Pena, who leads the carbon sequestration research for the company's clean technology group.

The reason why industry did not take advantage of 45Q in the past is because it wasn't big enough to incentivize industries to take on the risk that these types of projects could create, Perez Pena said.

"In fact, she said, "almost all currently operating projects needed the revenue stream from selling CO2 to oil and gas companies to improve their project economics."

However, interest in CCS projects—especially among carbon-intensive industries such as cement and steel manufacturers and biofuel producers—has mushroomed since the IRS guidance came out in January 2021, CATF data released 22 February show.

That's because Beck said the federal tax credit for CCS increases linearly until 2026, "which means its more valuable for projects to come online closer to the commence construction deadline," she added.

In 2018, there were just two industrial CCS projects in development. That figure jumped to nine in 2019, before slumping to five in 2020 during the pandemic-induced lockdown. Following the release of the guidance in 2021, however, 44 new projects associated with industrial sites were announced, CATF's Beck noted.

"Futureproofing" decarbonization

Technologies to manage CO2 emissions are essential to "futureproofing" decarbonization in the US, especially as President Joe Biden has set a goal to decarbonize the US economy by 2050, Beck said during a 22 February media briefing on the status of carbon capture at industrial sites.

As the International Energy Association pointed out in a May 2021 report, Beck said it is not only important to have the capacity to capture 7.6 gigatons of carbon emissions to reach a net-zero future, but it is important to understand that this capacity is needed even in a scenario in which no growth in fossil fuel use is taking place.

The Great Plains Institute, one of the 90 members of the Carbon Capture Coalition along with CATF, said expanding and reforming the 45Q credit has had the benefit of reducing the cost and risk to private capital of investing in the deployment of carbon capture technology across a range of industries, including power generation, ethanol and fertilizer production, natural gas processing, refining, chemicals production, and the manufacturing of steel and cement.

Emissions reduction not enough

Global building materials company LaFargeHolcim is the largest cement producer in the US with 10 operating plants and has pledged to reach net-zero levels from its operations by 2050.

At the briefing, Virgilio "Lio" Barrera, the company's government and public affairs director, said LaFargeHolcim cannot meet its goals without carbon capture. Even if the company electrifies all its operations and uses alternative fuels, he said 50% of the emissions LaFargeHolcim releases during cement manufacturing arise from the process of chemically converting raw materials.

"It's like taking Alka Seltzer and putting it in water. All the bubbles that are generated, all that fizz, we have to figure out how to capture them," he added.

Jason Albritton, head of climate energy policy for The Nature Conservancy, agreed with Barrera at the briefing.

Reaching the last mile of decarbonization

Improving the efficiency of industrial solutions and utilizing nature-based solutions, such as planting trees to secure offsets, won't be enough to get that "last mile of decarbonization," he said.

LaFargeHolcim received a $1.5 million grant from the US Department of Energy (DOE) to retrofit its cement plant in Florence, Florida, with CCS capability. Barrera said the company is currently conducting front-end engineering design studies for CCS for its cement plants in Florence and Saint Genevieve, Missouri.

While LaFargeHolcim is still developing its CCS capabilities, Chicago-based Archer-Daniels-Midland Company (ADM), the multinational food processing company, is already storing CO2 from producing ethanol at its Decatur, Illinois, plant.

"We have currently sequestered more than 3.5 million mt of CO2, which is the equivalent of removing about 750,000 cars from the road for a full year," Colin Graves, ADM's vice president of innovation, told the briefing about the company's Illinois plant.

ADM also is partnering with Wolf Transport Solutions to develop a pipeline that would transport CO2 from the company's plants in two Iowa cities—Cedar Rapids and Clinton—to the same storage facility that it is currently utilizing in Decatur.

CCS facilities still below capacity

However, the number of announced CCS projects in the US remains far below the capacity needed to capture industrial facilities' CO2 emissions.

A June 2020 white paper on decarbonization jointly authored by Great Plains Institute and the University of Wyoming identified at least 938 industrial facilities engaged in manufacturing iron, steel, aluminum, cement, and fertilizers that emit 509 million mt of CO2 each year that would make ideal candidates for carbon capture.

It takes between four and six years on average to have a CCS facility up and running, Beck said.

Graves, Barrera, and The Nature Conservancy's Albritton agreed during the briefing that the 45Q tax credit has been instrumental in enabling CCS plans to take off in the US, and further improvements are needed to the tax credit scheme to accelerate deployment of commercial CCS.

To unlock the options for industrial CCS facilities, especially in the cement, steel and hydrogen sectors, Beck said the value of the 45Q credit should be raised to $85/mt for industry and power generation facilities, direct payment of the full credit in cash should be allowed, and the construction deadline should be extended so it doesn't end in 2026.

These improvements were included in the Build Back Better Act that stalled in Congress over the objections of the lone Democratic US senator, Joe Manchin, who objected to the overall price tag of the legislative package, but not necessarily to the climate and cleantech provisions, including CCS.

In fact, analysis by a consultancy, the Rhodium Group, shows the improvements to the tax credit scheme in the Build Back Better Act would have unlocked an additional 110 million mt of industrial carbon capture capacity, yielding up to 76 million mt in reductions in 2035.

Congressional reform of the tax credit in the fiscal year 2018 spending bill and the IRS guidance made it clear a CCS project will only be considered eligible if the captured carbon is stored in a geologic saline formation or used for enhanced oil recovery, or if it is utilized to make fuel, chemicals, or other beneficial products.

Investor interest driving carbon capture

Even without further legislative changes, analysts say more industrial facilities, such as those involved in making fertilizers or producing ethanol that emit at least 100,000 mt of carbon, can take advantage of the current tax credit if they meet the criteria of capture and storage.

During the past year, IHS Markit's Perez Pena has noticed a dramatic increase in interest from multiple industries to add carbon capture to their operations.

She attributes this heightened interest to investor pressure over decarbonization strategies that is driving multiple sectors to evaluate a variety of solutions.

As a result, new business models are emerging that could reduce project costs such as CCUS industrial clusters or hubs, and finally incentives are improving, she said.

These include not just 45Q credits, but also low-carbon fuel standards, which Perez Pena said could prove to be "a substantial incentive" when applied to carbon capture projects from ethanol production.

Posted 23 February 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

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