Adding Up CCS Revenue Streams

The dual financial motive behind ethanol’s move into CCS helps explain how and why producers intend to monetize their vital new role in the carbon sequestration movement.
By Luke Geiver | August 17, 2022

On a mid-July afternoon, a group of reporters, community leaders and other townspeople gathered near Goldfield, Iowa, on the grounds of Corn LP, a 72 MMgy corn ethanol plant in the heart of ethanol country. The team at Corn LP had the plant clean and ready for the day’s media tour scheduled to start at 3 p.m. Chris Boshart, general manager of the plant, was prepped and ready to talk to the invited group about the facility, touching on the plant's history and what its future might look like. Boshart wasn’t alone.

Jim Pirolli, chief commercial officer of Summit Carbon Solutions, was there with Boshart to help add to the discussion—specifically about the plant’s future. Pirolli has been busy since joining the Summit Carbon Solutions team. The affiliate of Summit Agricultural Group is working towards building a multi-state, multi-ethanol plant pipeline system that could help ethanol producers realize a future enhanced by carbon capture.

Ethanol Producer Magazine spoke with Boshart and Pirolli moments after they completed their tour, discovering how it went, what questions the general public had about fermentation or carbon, and why. More specifically, why has CCS taken the ethanol sector by storm, and why do producers in and out of ethanol country put such great value on CCS? Their answers were largely about two things: the big picture for ethanol’s future and the immediate financial impact CCS could have on a biorefinery’s bottom line.

Factoring In CCS
Several factors affect the financial viability or economic potential of an ethanol plant capturing carbon produced during the ethanol production process. On a basic level, the advantages of carbon capture are simple and well understood throughout the ethanol industry. Capturing carbon lowers the carbon intensity score of any ethanol produced at a plant that participates in reducing its carbon footprint through capture and sequestration techniques. That CI score (the lower the better) increases the monetary value of ethanol in low-carbon markets, particularly California, that incentivize liquid fuels and other sources of energy that are produced with lower carbon than traditional gasoline or diesel. Oregon has a similar incentive for low-carbon biofuel, and other states are following suit, but the California Low Carbon Fuel Standard is currently the main game in town.

In most cases, a gallon of ethanol sold into California with a lower-than-average CI score will fetch a range of 20 cents to 40 cents more per gallon through the state’s LCFS. So, alone, CCS-associated ethanol with an improved CI score generates more income per gallon out West. But that’s only half the story. 

In addition to the per-gallon pay bump offered via the California market, the U.S. Internal Revenue Service offers a tax credit on renewable energy linked to carbon capture. The credit is known as 45Q. Like the CI score-to-monetary gain part of carbon capture, the 45Q seems simple but is more complex than most think.

To understand how an ethanol plant earns additional revenue through carbon capture and the LCFS, consider this hypothetical combined with the use of the credit price calculator provided by the California Air Resources Board.

The calculator takes into account the current price of an LCFS credit, the CI score of the given energy source and the energy economy ratio value relative to the fuel the lower carbon biofuel is displacing. Currently, CARB assumes that the EER value of ethanol is 1; electricity used to power an electric vehicle earns an EER of 3.4, in comparison.

The price of an LCFS credit fluctuates based on the volume of credits generated each quarter. With the rise of EVs and the acceptance of renewable diesel in the LCFS program, the volume of credits available in the program continues to rise. With a greater supply of credits available to trade or acquire by third parties, the price has decreased some. The most an ethanol-generated credit can be valued at is $200 per credit, but current values are about half that amount.

While the CI score of a fuel or energy source can also vary, the average CI of ethanol used in the LCFS market is roughly 58. There are numerous factors that can change a CI score, including feedstock, energy use and, now, participation in CCS.

The CARB calculator shows how much monetary bump a gallon of ethanol will receive with a particular CI score at a particular credit price. So, at a CI score of 58, a credit price at $100 and the standard EER value of 1, a gallon of ethanol would receive an additional 27 cents per gallon. For perspective, the average price of ethanol in 2021 was roughly 86 cents per gallon. An ethanol facility selling 10 million gallons of ethanol outside of California would gross roughly $8.6 million. But an ethanol facility selling those same 10 million gallons into the LCFS system would earn $11.2 million, a difference of $2.6 million.

The addition of CCS can potentially reduce the CI score of ethanol by half. So, if that ethanol plant selling 10 million gallons into California was also capturing and sequestering its carbon, it would earn (assuming the same credit price and EER value used above) roughly $13.6 million, a difference of $5 million had it not engaged in CCS or sold its fuel into the LCFS market. If the credit price used in this hypothetical calculation was maxed at the $200 threshold, those 10 million gallons produced with CCS and sold into the LCFS market would earn $18.7 million. CARB is currently engaging in talks with industry about the amount of credits it has in the California market, the stipulations allowed for setting CI scores of energy sources and other factors that could positively impact the credit prices through the program.

While the gains for corn ethanol gallons sold into California with or without CCS can be done by just about anybody who can navigate an Excel spreadsheet (that is what CARB provides to do the calculations), figuring out the value of 45Q tax credits is much more complicated.

Bryen Alperin, director of renewable energy and sustainable technologies at Foss & Co., is an expert in the tax credit space. Alperin and his team have a long track-record of navigating and capturing the value of tax credits for entities that either earn the credits or have an appetite for using them. A tax credit reduces a company’s tax liability dollar-for-dollar. But according to Alperin, not every tax credit generator has a desire to use the credit or the account value to do so. Foss & Co. helps companies find a way to benefit from the credit, or helps them work with another company that can.

Alperin and his team are particularly skilled at connecting large corporations with companies that can generate 45Q credits. Foss will link tax equity investors to projects that generate certain tax credits that are valuable for various reasons to the TEI group. In the case of 45Q, the credit helps satisfy the desire of large entities needing or wanting to offset their own carbon footprint. Some corporations, like Microsoft, Alperin explains, are big into acquiring offset credits to meet their own requirements. By partaking in the 45Q credits, corporations or investors can get the value of a carbon offset while also potentially receiving the monetary value associated with 45Q which is valued by the metric ton of carbon.

“What we saw with the 45Q was that our investors had a lot of interest but there weren’t a whole lot of projects getting completed,” Alperin says. In many cases, Alperin helps 45Q tax credit generators link with TEI’s in an agreement that gets project investment capital to the 45Q project users (in this case, an ethanol plant installing CCS infrastructure and equipment) in return for the tax credits, equipment depreciation and preferred cash returns from project proceeds to the TEI’s.

In the past few years, Alperin has seen a major uptick in interest regarding the 45Q. At a recent presentation on 45Q during the Carbon Capture & Storage Summit—a co-located event at the International Fuel Ethanol Workshop & Expo, the largest gathering of ethanol producers in the world—the presentation space was standing room only. It's not just ethanol producers interested in how to navigate the 45Q. Investors and corporations are voicing their interest as well. “We were sitting down with one of our investors recently and they were encouraging us to get involved earlier on to bring more projects to market faster.” In some cases, those investors are willing to deploy their own capital to get a project going so they can get the 45Q credits in return for their tax strategy.

“I think about it from the corps perspective. They can wire money into the IRS for taxes, and they have no control on how it gets used. But by investing in these projects they are still paying into the social good, and they have control over the types of projects that they are able to promote with those dollars,” Alperin says, adding that, “they have an opportunity to earn a return on their investments.”

In 2022, the value of the 45Q credit for CCS is roughly $37 per metric ton. The minimum volume of metric tons that a carbon producer has to emit annually in order to qualify for the credit is 100,000 mt. At the minimum, the 45Q credits would be worth $3.7 million to any entity that can use them.
By projects that investors want to back, Alperin means CCS. And to help Foss meet the needs of its large clients looking to gain access to 45Q credits passed from a project or ethanol producer to their own tax strategy playbook, Alperin and team have linked up with the longest running CCS expert in the country: Battelle. Foss and the CCS expert group of 40-plus engineers and industry CCS veterans, have partnered to help assess, plan and build-out CCS projects at ethanol facilities (in addition to steel or cement plants).

“If a plant operator doesn’t want anything to do with the CCS project, we can manage and pay for the CCS and essentially buy their CO2,” Aplerin says, adding that, “if they want to be a little more hands on, there are structures where they can put up some of the development capital.”

Either way, Foss is already helping ethanol plants access capital and partners interested in their 45Q credits, all with the help of a national leader in CCS.

Jon Cartildge, commercial sales director for Battelle, says Battelle’s Carbon Services are set up to find and evaluate the feasibility of carbon storage and onsite sequestration of any given site while projecting operational and capital expenses for the project. But they don’t stop there. Battelle can stay engaged with a project for the long haul. His team can manage construction, obtain permits, monitor compliance during injection and post injection. “We can play the long game,” he says.

All ethanol plants have high-purity carbon, making them great options for CCS. Most produce well over 100,000 metric tons per year, according to Cartildge. Because the economics of constructing CCS projects don’t alter based on volume of carbon produced, plants with greater volumes of carbon are better off, he says.

The idea of subsurface work and carbon injection may sound risky, Cartilage adds, but with Battelle and their expertise in the space, the risk gets downsized so that projects can get done and thrive.

The Big Picture
Boshart says there are multiple reasons why the Goldfield ethanol plant was the first to sign up on the Summit Carbon Solutions pipeline plan. “This is an important project for us,” he says, noting that during the depths of the Covid pandemic, the plant was shut down and his team was looking at layoffs. The difficulties of Covid impacting the market and the role carbon has on the future of many industries made Boshart and his team do a reality check on what they needed to do.

“You don’t want to be left out on this,” he says of the CCS project. People need to know the benefits that these projects will bring, he also explains, referring directly to why his team held the media tour in mid-July this year with Pirolli. CCS is something to be proud of, he believes, and it shows that the ethanol industry is a major player in the push to lower the world’s carbon footprint.

There are others in the ethanol space that would agree, nearly a majority. Between the Summit project and others, ethanol producers are announcing their intent to join a CCS pipeline or implement on-site CCS. Boshart and his team were in the camp that thought about doing it on their own, but opted to have a third-party involved instead. Just as Alperin explains, the Goldfield plant and the others involved with Summit, didn’t have the appetite to deploy the capital to do the project. But, in return for their 45Q credits and a share of the proceeds from selling ethanol into the LCFS market at a premium, they are getting an entire CCS system built and operated by Summit. There is no volume commitment for members of the Summit pipeline.

Pirolli points out that these projects help ethanol decarbonize the transportation sector and position the industry and its agricultural allies well for the future.

Navigator CO2 Ventures LLC is also playing a major role in helping the ethanol industry supplant its future in the carbon discussion. The company is working to build a multi-state pipeline system to capture, utilize and/or store carbon. 

When Big River Resources LLC announced that it was signing up three of its Iowa-based ethanol plants for Navigator’s Heartland Greenway Project pipeline in May, David Zimmerman, CEO of Big River, explained the company’s position.

“As we strive to retain value in our local communities, it is imperative to understand that each component of the corn kernel has value, including the CO2. With the value proposition embodied within a partnership with Navigator, we come much closer to realizing that full environmental and monetary value,” adding that “this is the right decision not only for the environment, but also for our shareholders, corn suppliers and underlying communities.”

Navigator was on pace with its initial scheduling for the project, but another major ethanol player announced it was joining into the Heartland project recently. POET is prepared to connect several plants as well. Elizabeth Burns-Thompson, vice president of government and public affairs, says that although the scheduling and other economic impact studies had to be tweaked with the addition of POET, the announcement simply shows how important CCS is to the industry.

“CO2 is one of the last remaining things that does not have added value,” she says. “I think this showcases the necessary steps for ethanol to fully diversify.”

Burns-Thompson hopes that someday people will think about Navigator’s work, or others like it, as more than a pipeline. She views the systems as carbon management platforms, noting that the opportunity for utilizing carbon in new materials isn’t far off.

Those types of projects that rely on carbon as a building block don’t come to scale unless there is a backbone for supply. “This helps ethanol producers future proof their facility.”

Author: Luke Geiver
Contact: [email protected]