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Aug 15 (Reuters) – Tax credits in the $430 billion U.S. climate and tax bill due to be signed into law this week will kick-start carbon sequestration projects, oil and gas proponents say, offsetting start-up costs of some of the anti-pollution initiatives.
Carbon capture and storage centers that recover gases from chemical, power and gas producers and oil refineries have become the energy industry’s preferred way to combat global warming. But large-scale development has hung on to costs and a lack of guaranteed revenue.
The Biden administration’s Cut Inflation Act, which was approved by lawmakers last week, provides a tax credit of up to $85 per ton for landfilling carbon dioxide produced by industrial activity, and up to $180 per ton for the extraction of carbon dioxide (CO2) from the air.
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The bill also authorized new leases of federal lands for oil and gas development, without considering climate impacts. Crucially, he automatically approved high bids from a November 2021 offshore auction that included a drilling project for a carbon landfill program. Read more
“It’s a big deal,” said Tim Duncan, chief executive of Talos Energy Inc (TALO.N), an offshore oil and gas producer that’s building a business around carbon sequestration. Talos has launched four projects and signed major backers including Freeport LNG and Chevron Corp (CVX.N).
“It’s going to unlock a significant amount of emissions that could become economical to capture,” added Chris Davis, senior vice president of Milestone Carbon, which develops carbon projects for midsize companies.
CONTINUED STRUGGLES
For the past two decades, companies have tried and largely struggled to do business using CO2 to boost oil production. More recently, big investors want corporations to tackle global warming, and the oil industry aims to show it takes climate change seriously.
Carbon sequestration centers are offered around the world – in Alberta in Canada, Rotterdam in the Netherlands and Huizhou in China. Another type of carbon capture, which captures greenhouse gases directly from the atmosphere rather than industrial production, is also being considered. Read more
A massive expansion of carbon capture is essential to achieve net zero emissions by 2050, according to the advocate for energy-consuming nations, the International Energy Agency (IEA). The sector must move to storing 7.6 billion tonnes per year against around 40 million tonnes currently. Read more
The new tax incentives mean that “a number of small to medium-sized projects have a better chance of becoming profitable,” said Frederik Majkut, senior vice president of the Carbon Solutions business at energy services company Schlumberger ( SLB.N).
There are approximately 5 billion tons of carbon released each year in the United States that could be captured by these sequestration systems. Previously, very little of this could be captured economically, Milestone’s Davis said.
“At $85 a ton, I think you can get another billion tons,” he said. “It’s starting to look like an attractive investment.”
BIGGEST PROJECTS
Bigger projects, such as the one put forward by Exxon Mobil Corp (XOM.N), which has launched a $100 billion plan for a huge carbon hub serving refineries and chemical plants, will require carbon taxes and other initiatives, analysts said.
Deploying these industrial hubs at scale will require additional political support from the Biden administration, an Exxon spokesperson said of the bill’s climate provisions.
Smaller projects are more likely to move forward but still face hurdles including rights and underground pore permits, said Tracy Evans, chief executive of CapturePoint, which has partnered with pipeline operator Energy. Transfer (ET.N) for a Louisiana hub.
Currently, obtaining a permit for carbon injection wells can take years to obtain. And while offshore auctions cover large blocks, aggregating small parcels from private landowners onshore can slow down the process, he said.
“It will definitely lead to more investment in space,” Evans said.
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Reporting by Liz Hampton in Denver, additional reporting by Sabrina Valle in Houston Editing by Marguerita Choy
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