Political winds have shifted.
Populists are on defence. Liberals everywhere overwhelmingly see climate change as a central issue. The US will rejoin the Paris climate accord and climate plans will stress the need for the complete and rapid decarbonisation of the global economy. It will take trillions of dollars in spending to get it done and Trinidad and Tobago is super-positioned to take advantage of the spend. Carbon pricing, no longer viewed as politically toxic, is primed for the aggressive and costly climate plans under consideration. Welldesigned carbon pricing systems will save money rather than cost taxpayers.
The University of Trinidad and Tobago (UTT) and Georgia State University (GSU – in the US) are working together to take advantage of upscaled US Department of Treasury rules and tax incentives to assist low emission developers that take on the most expensive option for reducing emissions, namely, Carbon Capture Utilisation and Storage (CCUS).
Industrial processes to produce sought after commodities such as ammonia, methanol, and cement emit large amounts of highly concentrated CO2 gas to the atmosphere as a byproduct of the chemical processes. Fossil fuelled power plants also emit large amounts of CO2 as a product of the combustion technology used to generate electricity. The threat of more severe climate change impacts, due to increasing CO2 levels and an inability to sell products that are carbon-dioxide-emission-rich to Paris Agreement nations, has encouraged fossil fuel companies in the US to now consider energy’s carbon footprint at the forefront of future activities.
Society’s heavy dependence on fossil fuels and its current copious contributions of CO2 emissions linked to anthropogenic climate change, requires a long-term solution for sustainable development. CCUS is the uncoupling of energy use and CO2 release to the atmosphere. Energy technology transformation is required to increase efficiency and decarbonise fossil fuel usage. These transformative climateresilient outcomes are what UTT and GSU will develop in the US to combat global warming and build capacity in the oil and gas sector.
CCUS offers a unique solution to maintain growing demands of energy and reduce 'business as usual' emissions to the atmosphere. It has been cited as a strong option to achieve large-scale reductions in CO2 that are required in the coming century to mitigate the impacts of climate change.
CCUS involves four main stages:
1. Capture: Capturing of the CO2 from industrial and energyrelated sources.
2. Transportation of the captured CO2 to a well-established suitable well.
3. Usage or Underground Storage through either physical, chemical, or hydrodynamic underground processes, which need to be monitored to verify the portion released to the environment and the one that remains stored or sequestered underground.
4. Monitoring of the sequestered carbon.
Until recently, the costs associated with CCUS rendered the technology unfeasible, but recent economic drives, such as carbon credits and tax deductions, together with the maturity of technology have allowed wide interest in its application. CCUS is being developed worldwide, predominantly in North America, Japan, Europe, and Australia. It has the potential for introduction into any area or region with the relevant dynamics of sources of CO2 and sinks to store them. According to the International Energy Agency, there is expected to be a significant increase in CCUS projects until the year 2050 in power generation, the oil and gas sector and industry in a global effort to reduce CO2 emissions by decarbonising the energy generation.
The largest market for CO2 captured from industrial sources through carbon capture utilization and storage in Trinidad is enhanced oil recovery (EOR), using the CO2 to produce oil. Captured CO2 can be used for cement, algae production, and other uses, but EOR for Trinidad has vast potential. Moreover, it has a nearly 50-year track record in the US, where it was pioneered and where UTT and GSU will improve the verification aspects of the processes. The CO2 injected into oil formations becomes permanently stored as part of the process.
Another key option for captured CO2 is underground storage in a nonproducing geologic formation – for example, a saline formation. The US has been testing formations for suitability for large-scale storage for some two decades. There is one operating largescale industrial capture and storage project in a saline formation in the US. There needs to be many more to make material progress toward meeting GHG emission reduction goals. Without CCUS, the world will not meet emission reduction goals.
To encourage the oil and gas sector to capture CO2 from industrial processes, regardless of whether the CO2 was used for EOR and stored, or whether it was simply stored, the US Congress enacted the Section 45Q tax credit under the Internal Revenue Code. Today, the tax credit is set to rise over a period of years to USD 35.00 per ton of CO2 captured from an industrial source and stored through EOR, and USD 50.00 per ton for CO2 stored in a nonproducing geologic formation. The US Congress also authorized USD 50.00 per ton for “utilised” CO2 (such as cement or algae), subject to a life cycle analysis to assure the CO2 stays out of the atmosphere. The reason for the lower credit for CO2 used for EOR is that there is an expectation that oil producers will pay for the CO2, as they have done for many years.
There are several anticipated public benefits attached to CCUS spanning the economy, society, and environment. On the environmental side, CCUS drives an emissions mitigation benefit thereby reducing the amount of carbon dioxide emitted into the atmosphere. Carbon dioxide is a greenhouse gas that contributes to climate change and the adverse effects of global warming, such as flooding, drought, and wildfires. From a social perspective, carbon capture can improve air quality, subsequently improving quality of life and reducing the incidence of respiratory illness. These improvements can lead to higher productivity due to lowering lost workdays owing to illness. Livelihoods are also improved as the capture and utilisation of carbon can be used to enhance agricultural production and increase food security. Additionally, captured CO2, that is not geologically stored, can be used in many revenue generation and commercial activities, such as:
• Food and beverage
• Refrigerants
• Fire protection
• Concrete manufacture
• As a feedstock to produce and store fuels for future use Morgan Stanley estimates that climate change has already cost the world more than USD 650 billion over the past three years. If policymakers were to price CO2 at USD 100 per ton, the 40 gigatonnes of CO2 that the world emits annually represents a USD 4 trillion opportunity for carbon capture firms.
Tax-equity financing encompasses investment structures in which a passive equity investor looks to achieve a target internal rate of return based primarily on US federal income tax benefits that are expected to be available to it with respect to an investment in a particular asset. Tax-equity investors are typically profitable tax-paying entities such as banks, insurance companies, certain utilities, and general corporate entities. Tax-equity investors generally invest with a developer who cannot make efficient use of the tax benefits associated with the underlying asset. Tax-equity financing structures are driven by tax laws that are unique to the US.
Tax credits can be allocated up to 99% to a tax-equity investor with a minimum of 1% going to the developer. Cash distributions are different from allocations of income and credit, and cash distribution can change over the life of a project. The 45Q tax credit is available for the first 12 years after the facility is placed in service and will contribute to sustainable and investment-grade, climate-resilient projects and are a form of climate currency.
Under a cap-and-trade, regulated emissions are “capped” and the emission sources purchase allowances equal to their emissions. If a source exceeds its cap, it must purchase additional allowances from the cap-and-trade jurisdiction or from another source of emissions to offset. Under the Trump administration, US tax incentives could have never been used for emission trading and monetised via a Paris Agreement Article 6.2 exchange. This will not be the case under the Biden administration. CCUS undertaken in rich country cap-and-trade jurisdictions will be subject to emission-regulated floors and ceilings. Poor performers will be penalised and actors that invest in CCUS will be rewarded with credits to trade; credits which become more valuable as ceiling allowances are lowered.
The seller of 45Q tax credits will most likely be private oil and gas companies with operations in rich countries and developing nations. The work being performed by UTT and GSU will focus on developer partnerships that verify the earning of and the monetisation of the 45Q tax credit. The resultant three-way transactions will create multiple fee opportunities. These fees represent a niche market for international low emission developers and exchange possibilities under the Paris accord. 2021 will be a breakout year for CCUS and the state-of-the-art technology being developed by UTT, GSU and their private sector partners. Countries such as Trinidad and Guyana can benefit by including the international benefits generated from CCUS in their production share agreements.
