September 27, 2022 - It’s not clear whether the removal of guardrails on the 45Q tax credit will lead to more carbon capture proposals at coal plants, in part because the various third-party modeling efforts analyzing the Inflation Reduction Act did not incorporate those changes to the legislation into their models.

Organizations that modeled the impacts of the Inflation Reduction Act’s energy provisions include Rhodium Group, Princeton REPEAT Project, Energy Innovation, and Resources for the Future, and representatives from each group discussed their findings in an August 10 webinar. The presentations in that webinar showed that Resources for the Future did not model the impacts of higher 45Q tax credits, while Energy Innovation modeled the impacts of higher 45Q tax credits for the industrial sector, but not for the power sector. Rhodium Group and Princeton REPEAT Project modeled higher 45Q tax credits for the power sector and industrial sector.

Rhodium Group found that the higher 45Q tax credits will boost carbon capture projects in the industrial sector, but not in the power sector, as Rhodium Group Partner John Larsen explained in the webinar.

In an email, Larsen further explained: “For 2030 across all our scenarios we find zero carbon capture on new or existing fossil fuel fired power plants with the IRA in place. That holds for both natural gas and coal.” Larsen noted that “the enhanced tax credits for new clean generation and retention of nuclear plants makes that energy cheaper than a fossil plant with carbon capture even with enhanced 45q so capture just isn’t economically attractive.”

The Princeton REPEAT Project model, in contrast, found that the higher 45Q tax credits could lead to more carbon capture projects in both the industrial sector and the power sector, including for both gas and coal plants. But Professor Jesse Jenkins, who leads the Princeton REPEAT Project, explained that “the exact split across different sectors, industry and power, is about half and half in our modeling, but in reality it will depend on who can lock up those access to injection basins, and that’s hard for us to predict.”

But those models don’t account for the weakened guardrails for carbon capture projects at power plants, as Professor Jenkins acknowledged. Larsen did not specify whether Rhodium accounted for the weakened guardrails. In any case, it would be difficult for the models, which assume economically rational behavior by power plant operators and others, to reflect the weakened guardrails, which don’t directly change the economics of carbon capture projects. Instead, the weakened guardrails make carbon capture projects at power plants more likely by reducing the risks of developing the projects – including for power plant operators that may pursue carbon capture projects even if they are unlikely to be economic.

Most analyses of pathways to meet the Biden administration’s emissions reductions goals find that coal plants must be closed over the next decade, not retrofitted with carbon capture projects, including reports published by Lawrence Berkeley National Laboratory, Energy Innovation, Natural Resources Defense Council, Princeton University Net-Zero America, and Breakthrough Institute. The head of the US Department of Energy Office of Fossil Energy and Carbon Management, which funded coal carbon capture projects for decades, has also acknowledged that “it’s clear that carbon capture may not make economic sense on the remaining existing fleet of coal-fired power plants in the United States.”