America's improved carbon removal legislation
A proposed technology-agnostic $250 tax credit is a step in the right direction
I’d like to thank my readers who have been patient for the last 4 months while I made a career transition — I now work at Climeworks, the Direct Air Capture and Carbon Removal company. While I am thrilled to join the team, this blog will not become an advertisement for Climeworks. As always I’ll remain objective and only use public data to keep you updated on the business of carbon removal. The analysis and views here are my own, not Climeworks.’
TLDR:
A bill supporting durable carbon removal (CDR) was proposed in the US Senate with a $250 per ton tax credit
Congress is listening to CDR buyers as they write legislation, a big shift from listening to a few CDR sellers
This bill is an encouraging sign that there is bipartisan support for durable carbon removal
Amidst the alarmism that climate initiatives will die in America once President Trump takes office, there are some signs of life from an unexpected corner: The US Senate. The Carbon Dioxide Removal Investment Act (let’s call it CDRIA) was introduced in late November by Lisa Murkowski, a Republican from Alaska, and Michael Bennet, a Democrat from Colorado.
In the past I have been skeptical about CDR bills introduced in Congress. But the CDRIA is a huge improvement on past ideas. The timing is better, it is well-written, has bipartisan support, and it targets the technologies that have massive scaling potential — particularly rock weathering and DAC — but that need to be affordable now to finance massive scale in the 2030s. The CDR industry should be lauding these Senators for their thoughtful approach.
The CDRIA is quite simple: it grants a blanket $250 tax credit for every ton of CO2 permanently stored for Direct Air Capture, Biomass Carbon Removal, Enhanced Rock Weathering, and Ocean-based carbon removal (descriptions below). That means it complements the 45Q, the existing tax credit, quite well.
If the CDRIA passes, Americans would have two parallel sets of incentives for two types of carbon credits. The 45Q would cover avoided CO2 emissions with tax credits in the $60-$85 range. And the CDRIA would cover emissions directly removed from the atmosphere with a $250 credit.1 This makes a lot of sense, because sustainability buyers view avoidance and removal credits as fulfilling different needs.2
Notice how policymakers are listening to a previously ignored group — the CDR buyer. The 45Q was how a fossil-fuel company views carbon capture: EOR, point-source capture, and DAC.3 The CDRIA proposal is built around how buyers of carbon removal think — buyers want DAC, Biomass removal, ERW, and Ocean-based removals to have the same treatment. They tend to be less interested in point-source capture, and paying oil companies for EOR is out of the question.
Excluding point-source carbon capture from the CDRIA is also just smart politics.4 Point-source carbon capture is tricky politically, because it is fixed to fossil fuel plants, and (usually) owned by the fossil fuel companies. For some environmentalists, a tax credit for point-source capture means paying fossil fuel companies to continue to operate5.
I disagree with this take — obviously capturing CO2 from a natural gas plant that would otherwise emit for the next 20 years is a good thing. But I understand why some people oppose the technology. It’s good that there’s a small incentive in the 45Q, and it doesn’t need reforming in the CDRIA.
There’s a lot more to like about the CDRIA. Some highlights:
Makes engineered solutions more cost competitive with Biochar: The most deliverable form of carbon removal today is Biochar, priced at $180-$250 a ton. While it’s an awesome technology, Biochar will have serious scaling challenges and the CDR market desperately needs engineered pathways to mature. The CDRIA $250 subsidy will make rock weathering prices very competitive with Biochar. And next-gen DAC plants6 will also be close to Biochar after applying this tax break. This will catalyze scale of all these technologies, bringing cost down even more over time.
Rewards innovation regardless of pathway: The $250 incentive is the same for every technology, keeping market forces alive and rewarding innovation. CDR providers that can bring down cost and scale quickly will still win, unlike the 45Q which was picking DAC out of the crowd as the ‘favored’ form of durable CDR.
Allows carbon buyers to do more with less: The CDRIA includes the technologies that buyers are excited about, which means this tax break could significantly move the needle for the removal market. A removal portfolio of Direct Air Capture and Enhanced Rock Weathering would be 40-60% cheaper if this bill passes, allowing buyers to do more on a tight budget.
Plays to American strengths: The CDRIA is all about developing the American carbon removal ecosystem, so it focuses on CDR solutions that require engineering ingenuity, which America has in spades. It largely ignores nature-based removal approaches that rely on fast-growing trees which America doesn’t have.
The future of the bill is uncertain, but the fact that these Senators are getting feedback on the bill is encouraging. At the very least, it’s exciting that politicians on both sides of the aisle see carbon removal as an industry of the future — and they want America to lead.
It’s worth noting that DAC providers would be able to choose between which tax credit they apply — the 45Q or the CDRIA — and that eligibility standards are likely to be different. The 45Q is for tons of CO2 stored, while the CDRIA is for CO2 removed from the atmosphere, which are different metrics, and therefore will have different eligibility criteria.
International standards bodies and regulators in Europe are also starting to think about avoidance and removals as two distinct buckets. It remains to be seen whether climate-friendly US States (namely CA and WA) make a similar distinction
Fossil fuel companies view carbon capture as (1) point-source capture, a potential way to keep the core business of fossil fuel companies thriving (2) DAC, a theoretical technology that might be added to the portfolio in the future. Of course, one fossil fuel company, Oxy, is already moving toward (2)
Worth noting that Bio Energy with Carbon Capture and Storage (abbreviated BECCS) somewhat straddles the line between point-source and carbon removal. Reasonable people disasgree on which category it sits in. The fact that legislators have chosen to exclude it from this bill is wise — it avoids controversy and provides a bill that CDR buyers can advocate for. If this bill passes, BECCS would be covered by the 45Q
Enhanced Oil Recovery is even more politically problematic, since it uses captured carbon dioxide to push fossil fuels out of the ground
Only American-based plants will be eligible, so 1PointFive (Oxy), Heirloom, and Climeworks would be the primary CDRIA beneficiaries