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House GOP Eyes Multi-Year Carbon Capture Credit in Climate Plan

Feb. 7, 2020, 8:48 PM

House Republicans are pushing for a multi-year extension of existing tax credits for power plants and oil and gas operations that capture and store carbon dioxide—one climate policy getting rare backing from environmental and industry groups.

But the extension of the tax credits, known as 45Q, is only likely to see the light of day if balanced with clean energy incentives sought by Democrats, who control the House but also hold filibuster power in the Senate. For now, House Democrats are looking at a more modest one-year extension.

The tax credit was expanded two years ago and is set to expire by the end of 2023. But the credit’s expansion hasn’t spurred a rapid escalation in new carbon capture and storage projects. That’s because investors have been waiting nearly two years for the Internal Revenue Service to issue guidelines to help determine if projects are eligible.

House Minority Leader Kevin McCarthy (R-Calif.) wants to cobble together a package of GOP climate proposals this year. The top Republican on the House Select Committee on the Climate Crisis, Rep. Garret Graves (R-La.), is pushing Republican leaders to support up to a six-year extension of the carbon capture and storage (CCS) credit.

Republicans have largely embraced incentives for carbon capture and other technologies as a way to support fossil fuels and to combat climate change, while most still resist greenhouse gas regulations and emissions caps.

Parts of the McCarthy plan could come as early as next week, and are expected to include a platform of various carbon capture incentives. It is also part of the party’s efforts to show it has ideas for combating climate change to attract young voters demanding action.

Most Democrats also support carbon capture technologies, but note that they are only a partial solution to the changing climate.

Democrats Want Quid Pro Quo

Graves also wants the tax credit broadened to give the agriculture sector incentives for farm practices, such as reducing tilling of crops and tree planting, that help store carbon in the ground.

Sens. Brian Schatz (D-Hawaii) and Martin Heinrich (D-N.M.), also say a late 2020 deal on extending the tax credit is possible, either as a stand-alone measure or attached to a must-pass legislation. But they say Senate Democrats will insist that any deal include extending clean energy credits for wind and solar power, electric vehicles, and battery storage.

“That is something I support, but it’s generally a very high priority for the other side,” said Sen. Martin Heinrich (D-N.M.).

“There are other things that are even higher in my bucket,” Heinrich said, namely energy storage.

House Ways and Means Committee Democrats, who oversee the key issue of tax credits, have already lined up behind extending the tax credit—but for only one year, through the end of 2024. Rep. Mike Thompson (D-Calif.), chair of the Ways and Means Subcommittee on Select Revenue Measures, unveiled a draft package in November that includes such an extension.

House Ways and Means Committee Chairman Richard Neal (D-Mass.) said he favors continued incentives under the tax code for advanced technologies that help address climate change, including carbon capture. But he was noncommittal on going beyond the one-year extension he and other committee Democrats are pushing through their draft Growing Renewable Energy and Efficiency Now (GREEN) Act.

“I think in the end, part of the answer is going to be advances in investment and technology. So we’re likely to have something” on the CCS tax credit, Neal said.

House Ways and Means majority spokeswoman Erin Hatch said the GREEN Act would ensure that tax credits for clean energy and carbon capture are “harmonized” by extending both through 2024—though the committee might consider further extensions.

IRS Delays Main Focus

Any extension would also need the backing of the GOP-controlled Senate, but Republican senators John Barrasso (Wyo.) and John Hoeven (N.D.), both of whom pushed for the 45Q credits, say they are more focused on getting the IRS to issue the delayed guidelines than further extensions.

The IRS said it has been reviewing comments to its May 2019 request for input on how to craft the guidance and is coordinating with other federal agencies. It will publish the guidance “soon,” the agency said.

Graves and other backers of the multi-year extension say the delayed IRS guidance is the best argument for extending the credit.

Environmental groups including the National Wildlife Federation are backing a multi-year extension, “which would provide a more realistic time frame for the development, engineering, permitting and financing of carbon capture projects,” said National Wildlife Federation Climate and Energy Policy Director Shannon Heyck-Williams.

The Carbon Capture Coalition, which includes coal producers, oil companies, labor unions, and some environmental groups, said the IRS delays have already cost investors two years out of the six granted by Congress in 2018. Brad Crabtree, the coalition’s executive director, said carbon capture projects deserve parity with any extension for wind and solar power.

“The longer we go without the rules from Treasury, the more projects are at risk for not moving forward,” said Kurt Waltzer, managing director of the Clean Air Task Force, which backs the credit extension and is also part of the coalition.

“The passage of 45Q has teed up dozens of project developers” but IRS rules are needed to secure investors, Waltzer said.

—With assistance from Allyson Versprille.

To contact the reporters on this story: Dean Scott in Washington at dscott@bloombergenvironment.com; Amena H. Saiyid in Washington at asaiyid@bloombergenvironment.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Chuck McCutcheon at cmccutcheon@bloombergenvironment.com; Anna Yukhananov at ayukhananov@bloombergenvironment.com

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