Senior Democrats said a deal on tax incentives for carbon capture and storage projects could help solidify support from centrist lawmakers for President Joe Biden's infrastructure plan. (AP Photo/J. David Ake)
Hot issues on the table include the duration of the credit for carbon capture and storage projects under Internal Revenue Code Section 45Q
and proposals to provide a direct payment option and exclude the use of carbon dioxide in enhanced oil and gas recovery.Proponents have made clear the addition of more generous incentives for carbon capture projects could be key to passing a green energy tax package as part of an infrastructure bill in the evenly divided Senate and in the closely divided House. There are 219 Democrats and 211 Republicans in the 435-seat House, with five seats currently vacant.
Supporters are hoping to seize momentum from the enactment of the American Rescue Plan Act
as they prepare to move green energy incentives in a regular-order highway bill or in a potential filibuster-proof reconciliation bill. The parties reached agreement in December on a tax package in the Consolidated Appropriations Act , which extended the start-of-construction deadline by two years to the end of 2025 for projects to qualify for the carbon capture credit.A new round of wrangling over the carbon capture credit is expected to continue in a planned Senate Finance Committee markup of a clean energy tax package on Wednesday and in an expected House markup in June of a tax package for a five-year surface transportation reauthorization. Proposed changes could reshape the parameters of the credit and address issues raised by new regulations issued by the Internal Revenue Service in January to implement provisions in the Bipartisan Budget Act of 2018.
Rep. Dan Kildee, D-Mich., Democratic chief deputy whip and member of the House Ways and Means Committee, said an agreement on an expansion of the carbon capture credit could be a way for party leaders to entice support from centrist lawmakers representing oil- and gas-producing states and rural areas. Some centrists have been cool to Biden's plan to finance infrastructure priorities with higher business levies, including a rise in the corporate rate to 28%.
Ways and Means Chairman Richard Neal, D-Mass., said he remained open to potential amendments to expand carbon capture incentives in H.R. 848, the Growing Renewable Energy and Efficiency Now Act, or GREEN Act, proposed by Rep. Mike Thompson, D-Calif. Neal has vowed to include the Thompson bill in the tax package for a regular-order five-year surface transportation reauthorization, which is expected to be completed by July 4, the deadline Speaker Nancy Pelosi, D-Calif., has set for a House floor vote.
"I am very broad-minded about it. I do like the concept. It would lessen some of the polarization in the argument. I think the science of it is very sound," Neal told Law360. He referred to the deep divide between the parties as Democrats have looked to uproot incentives that support the continued production of fossil fuels while Republicans have argued such incentives are needed to preserve jobs and ensure adequate supplies of affordable domestic energy.
The Thompson bill would extend the mandatory start-of-construction deadline through the end of 2026 for projects to qualify for the carbon capture credit. It would also allow taxpayers to elect to claim the credit as a direct refund or as a payment, though the direct payment would be at 85% of the full credit value.
But Neal has faced pressure from some Democrats to move toward a bipartisan proposal, H.R. 1062, by Rep. David McKinley, R-W.Va. The bill, the Accelerating Carbon Capture and Extending Secure Storage Through 45Q Act, or ACCESS 45Q Act, would extend the credit by a decade and provide a 100% direct payment option. Supporters said such upgrades would give certainty to businesses and help them rebound from the coronavirus pandemic.
Rep. Cheri Bustos, D-Ill., a former chair of the Democratic Congressional Campaign Committee, said she backed McKinley's bill as part of an overall strategy for dealing with climate change and also addressing the needs of rural residents, who rely on fossil fuels.
"Carbon capture is an important part of that," Bustos told Law360.
In response to such arguments, Neal and Thompson have signaled a willingness to explore ideas for tweaking their current proposal on the carbon capture credit to build support for an overall infrastructure tax package.
"It's a work in progress," Thompson told Law360.
In the Senate, Finance Committee Chairman Ron Wyden, D-Ore., also has faced pressure to cut a deal on carbon capture technology incentives as he prepares to move his Clean Energy for America Act proposal, S. 1298.
Under the bill, the credit would be extended until the electric power sector reduces carbon emissions by at least 75% from 2021 levels, at which point the incentive would be phased out over five years. Unlike the House bill, Wyden's proposal would provide for a direct refund, or payment, of the credit at full value.
But the Wyden bill would curb the incentive's scope as part of an overall plan to reduce incentives for fossil fuels. The measure would bar the credit in cases where carbon dioxide is used as a tertiary injectant for enhanced oil and gas recovery.
"What I'm trying to do is create a free-market, pro-innovation, pro-competition process for reducing carbon emissions," Wyden told Law360. He said the proposed changes in the scope of the credit were designed in part to reduce carbon emissions related to fossil fuel production.
For their part, many Republicans have backed an expansion of incentives for carbon capture and storage projects as a key part of an overall strategy for reducing net carbon emissions. They have joined business advocates in arguing for a 100% direct payment option in lieu of Neal's 85%, and have strongly opposed efforts by Wyden to deny the credit for the use of carbon dioxide in enhanced oil and gas recovery.
Rep. Kevin Brady, R-Texas, ranking member on the Ways and Means Committee, said he supported the expansion of incentives aimed at "making affordable energy cleaner."
"Carbon capture does that," Brady told Law360.
House Republicans have backed an ambitious proposal by Rep. David Schweikert, R-Ariz., to expand the carbon capture tax credit and make it permanent. Rather than eliminating the credit for use of carbon dioxide in enhanced oil recovery, it would increase the credit rate from $35 to $50 a ton for such projects. The plan would also raise the credit rate for other projects from $50 to $85 a ton.
While the House GOP plan faces likely roadblocks in both chambers, some Republicans are looking to cut a bipartisan deal on a more modest expansion of the incentive.
For example, Sen. Shelley Moore Capito, R-W.Va., has backed a bipartisan proposal, S. 986, by Sen. Tina Smith, D-Minn., which would extend the credit for five years and offer a 100% direct payment option.
Capito said she believed an agreement on expanded incentives for carbon capture and storage projects was key to ensure the nation can continue to rely on fossil fuels for a large share of its energy needs. She said the potential elimination of the credit for use of carbon dioxide as an injectant could reduce the supply of energy and slow the development of carbon capture technology.
"We can't just focus on renewable energy," Capito told Law360. She has joined a small group of Republican senators in negotiations with Biden on a potential bipartisan infrastructure bill that are expected to continue through Memorial Day.
Whatever happens, Schweikert said he was confident there would be strong bipartisan support for a significant expansion of the carbon capture credit.
He told Law360, "45Q may be one of the few things that's bipartisan this year."
--Editing by Robert Rudinger and Neil Cohen.
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