US power sector carbon capture and storage under the Inflation Reduction Act could be costly with limited or negative abatement potential

Abstract

The United States’ expected largest-ever climate mitigation investment, through 2022’s Inflation Reduction Act (IRA), relies heavily on subsidies. One major subsidy, the 45Q tax credit for carbon oxide sequestration, incentivizes emitters to maximize production and sequestration of carbon oxides, not abatement. Under IRA’s 45Q changes, carbon capture and storage (CCS) is expected to be profitable for coal- and natural gas-based electricity generator owners, particularly regulated utilities that earn a guaranteed rate of return on capital expenditures, despite being costlier than zero-carbon resources like wind or solar. This analysis explores investment decisions driven by profitability rather than system cost minimization, particularly where investments enhance existing assets with an incumbent workforce, existing supplier relationships, and internal knowledge-base. This analysis introduces a model and investigates six scenarios for lifespan extension and capacity factor changes to show that US CCS fossil power sector retrofits could demand $0.4-$3.6 trillion in 45Q tax credits to alter greenhouse gas emissions by -24% ($0.4 trillion) to +82% ($3.6 trillion) versus business-as-usual for affected generators. Particularly given long lead times, limited experience, and the potential for CCS projects to crowd or defer more effective alternatives, regulators should be extremely cautious about power sector CCS proposals.

A deep decarbonization framework for the United States economy – a sector, sub-sector, and end-use based approach

“…Economy wide Carbon Dioxide Removal (CDR) based technology implementations are especially left out for two reasons – one to quantify the decarbonization potential without implementation of technologies that directly capture and remove atmospheric carbon; two recent literature sources (which we do not necessarily endorse or oppose here) have highlighted concerns of scale-up success of carbon capture technologies due to their high implementation costs and parasitic energy demand. 36 When affordable, scaled-up implementation of carbon capture utilization and storage technologies can help further to reach net-zero decarbonization target by 2050. Past work also states that providing equivalent policy incentives to CDR and emissions reduction and treating them as fungible could lead to negative path dependencies and can result in temperature overshot even if end-of-century targets are met.…”

Carbon capture and co-pollutants in a networked power system

“…The CC literature has largely focused on technical aspects and cost effectiveness of the technology on individual facilities or processes (Tapia et al 2018, Peridas andSchmidt 2021). Some recent work has looked at perverse incentives in the IRA 45Q tax credit 6 , with the potential to extend plant lifetimes and even increase CO 2 emissions (Grubert and Sawyer 2023), which would also be relevant for co-pollutant risks. Finally, existing CC studies disregard that networked electrical systems can manifest counterintuitive behaviors (Stoft 2002, Downward 2010, meaning new technology and policy should include the potential for network effects (Navarro andShames 2003, Weare 2003).…”

Reply to ‘A commentary on “US power sector carbon capture and storage under the Inflation Reduction Act could be costly with limited or negative abatement potential”’

“…We thank Dr Kennedy from the US Department of Energy (DOE) for his comment on our 2023 paper in this journal, 'US power sector carbon capture and storage (CCS) under the Inflation Reduction Act could be costly with limited or negative abatement potential' (Grubert and Sawyer 2023), and the opportunity to respond. In our paper, we use a generator-level model of profit-maximizing rather than cost-minimizing behavior to illustrate that the Inflation Reduction Act's changes to the 45Q tax credit for carbon oxide sequestration incentivizes behaviors for existing US fossil power electric generating units (EGUs) that could increase life cycle greenhouse gas (GHG) emissions at high cost to the public (through subsidies) and rate payers (through capital expenditures).…”