State and local officials call on Congress to end tax credits for carbon sequestration

More than 100 state and local officials from the Midwest and West — including 27 from Iowa — are asking the U.S. Senate to eliminate tax credits for carbon capture and sequestration as part of a federal budget reconciliation bill.

Established by Congress and then-President George W. Bush in 2008, the 45Q tax credits incentivize companies to capture carbon dioxide from processes such as ethanol production and sequester it underground, so it won’t contribute to climate change by acting as a greenhouse gas in the atmosphere. The carbon also can be sequestered as part of enhanced oil recovery, in which pressurized gas is used to push more oil to the surface.

Opponents say the credits don’t work as intended.

“The 45Q tax credits really only make sense to the industries that are poised to make billions of dollars from them,” said North Dakota state Sen. Tim Mathern, D-Fargo. “They are supposedly intended to reduce carbon emissions, but in fact, 45Q tax credits pay polluters for polluting and subsidize private oil production at the expense of the taxpayer.”

Companies receive up to $85 per metric ton for regular sequestration and up to $60 per metric ton for sequestration via enhanced oil recovery — though there is a provision in a draft portion of the Senate reconciliation bill that would raise the maximum oil recovery credit to $85.

The repeal effort includes officials from Colorado, Indiana, Iowa, Montana, New Mexico, North Dakota, South Dakota and Wyoming. A few of those officials held a virtual press conference Wednesday.

Mathern said repealing the tax credits would put projects like Summit Carbon Solutions’ proposed five-state carbon dioxide pipeline “in dire danger.”

“And that’s really positive,” he said.

Summit’s project alone could qualify for more than $1 billion annually from 45Q credits. It aims to capture some of the CO2 emitted by dozens of ethanol plants and ship the carbon via pipeline to a sequestration area southeast of the oil fields in western North Dakota.

Earlier this year, South Dakota’s legislators and governor adopted a law banning the use of eminent domain to acquire land access for carbon dioxide pipelines. South Dakota regulators also rejected Summit’s project application, saying there was no path forward for the project under the eminent domain ban.

Those moves came after several years of anti-pipeline activism by landowners focused on property rights and the danger from potential leaks of toxic carbon dioxide plumes. The project has permits in other states, but some of those are being challenged in court.

Congressional Republicans are using the complex reconciliation process to move a budget package through Congress with simple majority votes in each chamber, avoiding the Senate’s 60-vote legislative filibuster. The House recently passed its version of the bill without a repeal of the 45Q tax credits.

Anti-pipeline activists also are concerned about a provision in an early draft of the House budget reconciliation bill that they said would have allowed federal regulators to approve natural gas and carbon dioxide pipelines over prohibitions in state law. That provision was removed before the bill passed the House. The rest of the statement from Thune’s office appeared to address that issue: “He understands their concerns, and he conveyed that the provision removed by the House is unlikely to be included in the final bill.”

This article first appeared in the South Dakota Searchlight.