The Senate Finance Committee has reached bipartisan consensus on a tax package that includes several CCS-related provisions. The legislation — known as the Energy Improvement and Extension Act of 2008 — may be considered by the full Senate as soon as today.
I. Section 48A/48B
One provision deals with the Section 48A (advanced coal electricity projects) and Section 48B (certain goal gasification projects) and is similar to that in the recent House-passed energy bill.
II. New CCS and CO2-EOR Credit
Another provision provides a new tax credit for geological carbon sequestration. The credit, which is similar to that which the Senate included in its version of the 2005 Energy Policy Act, would work as follows:
A carbon dioxide credit is an amount equal to the sum of (1) $20 per metric ton of "qualified carbon dioxide" which is (A) captured by the taxpayer at a "qualified facility", and (B) disposed of by the taxpayer in "secure geological storage"; and (2) $10 per metric ton of qualified carbon dioxide which is (A) captured by the taxpayer at a qualified facility, and (B) used by the taxpayer as a tertiary injectant in a "qualified enhanced oil or natural gas recovery project.”
"Qualified carbon dioxide" means CO2 which would otherwise be vented and "is measured at the source of capture and verified at the point of disposal or injection. That term excludes recycled CO2.
A "qualified facility" is any industrial facility which is owned by the taxpayer, "at which carbon capture equipment is placed in service", and which captures not less than 500,000 metric tons of carbon dioxide during the taxable year.
The CO2 must be captured and disposed of within the United States. Weyburn doesn't count, in other words.
With respect to the term "secure geological storage," the bill states that the Treasury, in consultation with EPA, must "establish regulations for determining adequate security measures for the geological storage of carbon dioxide [under the $20/ton credit noted above] such that the carbon dioxide does not escape into the atmosphere." The term includes storage in deep saline formations and unminable coal seams. This language suggests that EOR is not deemed "secure geological storage."
The term "qualified enhanced oil or natural gas recovery project" is defined with respect to the section 43 credit (which is not surprising).
The credit must be used by the entity that captures and "physically or contractually ensures the disposal of or the use as a tertiary injectant of the qualified CO2," except to the extent provided in the Treasury's regulations.
An amount of the credit that equates to the CO2 "which ceases to be captured, disposed of, or used as a tertiary injectant" shall be recaptured under the IRS regulations.
And finally, the credit only applies with respect to "qualified carbon dioxide" before the end of the calendar year in which the Treasury, in consultation with EPA, certifies that 75,000,000 metric tons of qualified carbon dioxide have been captured and disposed of or used as a tertiary injectant. In other words, the first 75,000,000 metric tons of injected CO2 is eligible for the credit.
III. Publicly Traded Partnership Income Treatment of Alternative Fuels
And last but not least, and in a welcome surprise, the bill permits publicly traded partnerships to treat income derived from the transportation or storage of certain alternative fuels — including anthropogenic CO2 — as qualifying income for purposes of the publicly traded partnership rules. This provision may very well jump start the build-out of CO2 pipeline and related infrastructure that the nation has been awaiting.