June 6, 2017 at 5:09 pm ET
Senators Preparing Bipartisan Bill to Extend Carbon Capture Tax Credit
A bill that would extend tax credits for carbon capture will soon be introduced, a Senate aide said Tuesday, as lawmakers want to ensure companies retain incentives to invest in the costly technology.
The forthcoming measure, co-authored by Democratic Sens. Heidi Heitkamp (N.D.) and Sheldon Whitehouse (R.I.), marks the latest attempt to expand and extend the federal tax credit after last year’s legislative effort failed. That bill had bipartisan support among its 19 co-sponsors, including Majority Leader Mitch McConnell (R-Ky.). The new legislation already has bipartisan support among its 24 backers, according to the aide, who spoke on condition of anonymity.
The current statute, implemented almost 10 years ago, places a 75 million ton cap on the amount of captured carbon that qualifies for the tax credit. That cap is forecast to be reached in late 2018 or early 2019 after the Internal Revenue Service said almost 53 million tons had been claimed as of last month.
Industry analysts say companies are already slowing investment in technology to capture carbon dioxide, a greenhouse gas, due to the approaching deadline. The new legislation would remove the cap on the amount of captured carbon eligible for the tax credit, giving companies a more stable incentive for investment.
However, fiscal conservatives may not support extending the credit, or loophole, which could take away from efforts on broad-based tax reform.
Carbon capture is an expensive process that takes carbon dioxide out of the atmosphere by separating it from industrial processes and injecting it into the ground, for storage or for enhanced oil recovery.
State legislatures in Alabama, Kentucky, North Dakota and Texas have already passed symbolic resolutions calling on Congress to extend the tax credit before the cap is reached. Those states have oil, gas or coal industries that depend on the tax credits to offset the costly carbon capture processes. Supporters argue that coal and ethanol-based plants, oil refineries and commercial steel producers could use the tax credits to create more jobs while reducing carbon dioxide in the atmosphere.
“You can be certain that the proponents of carbon capture are working hard in just about any state to get a resolution,” Jeff Bobeck, policy lead at the Global Carbon Capture and Storage Institute, which promotes carbon capture, said in an interview last week.
In addition to removing the cap, the bill would expand the federal reward for storage and re-utilization of captured carbon based on the framework of the measure from the 114th Congress.
Carbon stored underground is currently rewarded with $20 per ton, and carbon captured and injected into oil and natural gas fields for enhanced oil recovery receives a $10 credit per ton. The new measure is meant to copy last year’s legislation, which called for increasing the credits to $45 and $35 per ton, respectively.
Bobeck said the credit extension and expansion would encourage investment in the technology; companies currently have little reason to enter the field with the tax credit cap on the horizon.
“If Congress were to extend [the credit] and make it unlimited, there would certainly be more interest,” Bobeck said.
Aides for Heitkamp and Whitehouse could not provide information on the specific timing of the bill’s introduction.
Bobeck said the legislation could be taken up on its own or as part of a larger bill — but the legislation is unlikely to move until broader reform of the tax code is resolved.
And the tax credit may not receive full support from fiscally conservative groups such as the Tax Foundation, which supports tax reform that would focus on raising revenues. Or, as the group’s Director of Federal Projects Kyle Pomerleau put it: fewer tax credits.
“This is one of those things that people would recognize as a loophole,” Pomerleau said in an interview last week. “Those that favor tax reform in general, from Democrats to Republicans, think the tax code should be doing less of this stuff and focus on pure revenue raising.”