Valuable and Viable

FROM THE DECEMBER ISSUE: Changes to the 45Q tax credit increase the monetary value of carbon dioxide for ethanol producers.
By Andrew Duguid | November 15, 2019

Changes to Section 45Q of the U.S. tax code have made it easier for ethanol producers to take advantage of tax credits for capturing and storing carbon dioxide emissions. However, producers must act fast to meet the Jan. 1, 2024, deadline to start construction. Following are a few things ethanol producers need to know about the 45Q tax credits and the steps necessary to determine if carbon capture, utilization and storage (CCUS) is a viable option.

For Ethanol Producers
45Q is a section of the tax code that provides incentives, in the form of tax credits, to encourage companies to invest in carbon capture and storage solutions that reduce carbon emissions. This means ethanol producers can monetize the CO2 emissions produced during fermentation. To qualify for tax credits, captured CO2 must be either stored underground in secure geologic formations, used for CO2-enhanced oil recovery (CO2-EOR), or utilized in other projects that permanently sequester CO2.

The 45Q program was initially implemented in 2008. The Bipartisan Budget Act of 2018 made important amendments to the tax code that increased the value of the tax credit for ethanol producers. Among other changes, the amendments to Section 45Q:

• Increase the value of the tax credit from $20 to $50 per metric ton for secure geologic storage projects and from $10 to $35 for CO2-EOR projects.

• Reduce the annual capture requirement from 500,000 metric tons to 100,000 metric tons for ethanol plants and industrial facilities other than electric generating units.

• Allow the capturer of the CO2 to transfer the credit to other entities, enabling flexible business models.

These changes make the economics of carbon capture and storage more attractive for ethanol producers, whether storing carbon, or selling it for EOR or other utilization projects.

How It's Done
In carbon capture, utilization and storage, CO2 is captured, compressed and dehydrated at the source. It is then transported to the injection facility and injected into a secure geologic reservoir for storage or into an oil reservoir for EOR. Injection in these secure formations safely keeps the captured carbon deep underground where it cannot escape into the atmosphere. CCUS is an important tool for reducing overall industrial carbon emissions.

Capturing CO2 is a straightforward process for ethanol producers. CO2 rises naturally during the fermentation process. The CO2 is captured using a fan system and compressed and dehydrated (typically using glycol dehydration) as preparation for transport and storage. Capturing CO2 from the fermenter unit is cost effective because the value of the 45Q tax credits can offset capital and operational expenditures.

For geologic storage, CO2 is injected into a deep geologic formation where it can be safely and permanently stored. These formations are typically deeper than 2,650 feet to maintain the CO2 in a supercritical state. Supercritical CO2 is best because the CO2 has the viscosity of a gas for easy injection and a liquid-like density for more efficient storage. The deep formation must have sufficient ability to allow the CO2 to enter the formation (permeability) and sufficient space to store the CO2 (porosity). Above the storage formation, there must be an impermeable caprock layer that prevents the stored CO2 from leaking out. Deep saline reservoirs and depleted oil and gas reservoirs are good candidates for CCUS projects. These formations can be found in sedimentary basins throughout the U.S.

In EOR projects, captured CO2 is injected into oil reservoirs to access oil that was trapped after initial oil production in the field ended. The injected CO2 is permanently stored in the reservoir.

Evaluating Economics
Ethanol producers interested in taking advantage of 45Q tax credits must determine whether it makes economic sense. Under the new tax code, the answer for many producers will be yes. Some questions to ask include:

• Does my operation produce at least 100,000 metric tons of CO2 annually?

• Are there suitable geologic formations for carbon sequestration in my vicinity?

• Are there nearby oil and gas producers who may be interested in purchasing my CO2 for CO2-EOR?

• What capital investment will be required to implement CO2 capture and compression at my facility?

• Am I prepared to make this investment to meet the Jan. 1, 2024, deadline for beginning construction?

The following steps are needed to inform the economic analysis, identify an appropriate storage location and ultimately construct and operate the well:

• Screening: Identification of a suitable storage site that meets the requirements for CCUS projects.

• Modeling: The geological formation is modeled to determine whether it has sufficient storage capacity for the life of the project.

• Characterization: A characterization well is drilled to collect new data to verify the characteristics of the storage reservoir and caprock formations.

• Permitting: A permit must be obtained that ensures all safety and environmental regulations are met.

• Drilling: An injection well is drilled to inject and store CO2 in the target geologic reservoir.

• Surface construction: Infrastructure for CO2 capture, compression and transport is installed.

• Operations: CO2 is injected for storage or CO2-EOR. 

• Monitoring and reporting: 45Q requires companies to have long-term monitoring and reporting in place to ensure CO2 is safely and permanently stored.

These steps take time, so ethanol producers interested in pursuing the 45Q tax credits should get started as soon as possible. Jan. 1, 2024, is coming up fast.

Author: Andrew Duguid
Senior Engineer, Battelle