The failure of the Build Back Better to pass through the Senate last month left President Biden’s bold climate ambitions in murky waters . Yet on Friday, in quite dramatic fashion, the Inflation Reduction Act (IRA), the largest federal investment in combating climate change, passed through the House of Representatives and awaits the final stamp of approval.
When President Biden signs the bill into law, it will be a momentous moment for the U.S which may have just revived its 2015 Paris Agreement target of slashing emissions in half by 2030. Analysis by Princeton’s REPEAT project estimates that the IRA will reduce the US’s CO2 emissions by 42% below 2005 levels by 2030. For all our readers who strictly work in gigatons and as DAC enthusiasts, this equates to “0.8-1Gt of additional carbon emission reduction in 2030 relative to current policy baseline” analysis by Jesse Jenkins of Princeton’s REPEAT.
To do this, the IRA earmarks $369 billion for climate initiatives, a large proportion of which will contribute to the continued decarbonization of industry in the U.S, targeting both the production and consumption of renewables, electric cars, heat pumps and alternative fuels. An article in Lexology published this week, sets out a detailed breakdown of all the climate and energy beneficiaries.
Whilst the focal point of the bill’s climate fund will be clean energy and renewables, a summary below illustrates how Direct Air Capture (DAC) will be affected, starting with the posterboy tax-credit of point-source carbon capture and direct air capture: 45Q.
45Q’s New Look
Previous to the IRA, the tax credit awarded companies $50 per tonne of CO2 captured and durably stored or $35 per tonne for utilizing it in their manufacturing process (for instance in concrete or alternative fuels). While this was positive, frustrations ruminated amongst the nascent DAC companies, the majority of which still at pilot stage, simply did not have the 100,000 ton/yr capture capacity required to benefit from the credit. At a time where assuring capital would be essential to scaling efforts, the credit was ineffective.
The IRA changes everything, providing “more money, more time and [benefitting] smaller projects” put succinctly by Lucy Hargreaves, a policy expert at Patch. To break this down, the new 45Q more than triples the previous credit to $180/ton for durable CO2 storage and boosts CO2 utilization to $130/ton. However, as mentioned above, providing more finance is ineffective if companies cannot meet the minimum capture requirement. The fact that the IRA states that companies only need to capture 1000 ton/year to access the credit, will provide financial reassurance to the plethora of DAC start-ups, university spin-outs, and small-scale facilities that make up the majority of the emerging DAC ecosystem. Smaller projects will also be boosted by the fact they will now be able to receive direct pay for the full value of the credits for the projects first five years, providing capital to aid their no-doubt ambitious scaling plans.
Additionally, the enhanced 45Q will provide DAC companies with a seven year extension on the deadline for the construction of eligible facilities (until Jan 1st 2033). This will provide research projects and those still early in their DAC technology readiness, more time and peace of mind to realize their plans.
Support Extended for CO2 Utilization and Renewables
Elsewhere in the bill, is a hefty $2.15Bn investment into low-carbon buildings and the use of low-carbon materials (a big win for CO2 utilization companies such as CarbonCure and CarbonBuilt), plus a further $100m to help build out low-embodied carbon labelling. In conjunction with the 45Q revisions, both these funds will support DAC companies looking to use the sequestered CO2 in making low-carbon concrete. However, concrete is not the only DAC+utilization pathway benefiting from the bill. Credits on alternative fuels (otherwise known as syn-fuels) have been extended until the end of 2024 alongside a $250m injection into the exploration of sustainable aviation fuel.
The cost of renewable energy is projected to come down even further with a $30Bn assigned to production tax-credits. The ramifications of having a clean, cheap source of energy goes far beyond our carbon dioxide removal ecosystem, however, the energy-intensive regeneration step of many DAC operations, may have just been handed a solution and in turn, a rebuttal to many of their critics.
Above all, the IRA sends a strong signal to the rest of the world that the US is backing the reality of a carbon capture and removal industry. This, alongside the CHIPS and Science Act (passed 9th August 2022) which commits $1 billion in funding for carbon removal R&D over a four year period (2023-2026) “galvanizes carbon removal not only through direct federal support, but also by signaling the strength of the market to the private sector” said Ben Rubin, Executive Director of the Carbon Business Council.
Casting our minds forward to 2030, I have a strong inclination that we will look back on 2022 as a transformative year for carbon removal policy. As a quiet optimism sweeps through all those working on climate, we should be cautious not to sensationalize. The road is long and winding but it certainly is pleasant not to be wandering in the desert anymore.
