The promised funding for new Direct Air Capture hubs in the US is starting to flow. And as public momentum and private investments surge, there’s still over a billion dollars worth of financing available for projects.
As Project Cypress, a joint venture between the independent research and science non-profit, Battelle, and leading direct air capture and utilization companies, Climeworks and Heirloom, receives its first $50 million, the Department of Energy is beginning to explore the potential for funding smaller-scale projects piloting carbon removal solutions as well.
There could be as much as $2.5 billion available for other regional carbon capture hubs after the government awarded an initial $1.2 billion to Project Cypress in Louisiana and the South Texas DAC Hub.
Overall, several incentive programs exist to finance Direct Air Capture (DAC) projects, aimed at reducing carbon emissions and combating climate change. These incentives include federal grants, loans, tax incentives, and specific state programs.
In addition to the DAC Hub funding, there’s funding available for Commercial and Pre-Commercial developments totaling some $115 million, a Carbon Utilization Procurement Grants Program, which offers grants to states, local governments, and public utilities for the commercialization of technologies that reduce carbon emissions, and the Technology Commercialization Fund, which accelerates CDR with a $15 million investment.
Tax credits of up to $180 per metric ton are available for carbon dioxide captured using direct air capture technology. A direct pay election allows taxpayers to sell credits tax-free to certain tax-exempt entities. And another $2.5 billion is available for carbon storage validation and testing to finance new and expanded, large-scale carbon sequestration facilities.
These programs represent a concerted effort by the federal government to incentivize the development and deployment of DAC technologies in the United States. They offer a mix of financial incentives, tax credits, and support for research, development, and commercialization efforts aimed at reducing carbon emissions and addressing climate change.
All of this federal activity has states racing to keep up. Across the country, legislatures actively establishing and clarifying legal frameworks applicable to CCUS operations.
Key focus areas include statutory clarifications of pore space ownership, mechanisms to combine ownership interests within a potential storage facility, long-term state stewardship programs, and the establishment of trust funds and fee mechanisms to defray costs incurred by the state.
Since the passage of the Inflation Reduction Act, the U.S. has witnessed a significant increase in the number of CCUS projects in development, thanks in part to the expanded and extended 45Q tax credit for carbon capture.
Despite some regulatory uncertainty, more than thirty carbon capture and storage projects are at various stages of planning and development across the country. States with the greatest potential capacity for CO2 storage include Texas, Louisiana, Mississippi, Montana, Alabama, Florida, California, Georgia, New Mexico, and North Dakota, with Texas leading in terms of estimated capacity.
Still, the permitting framework for CCUS remains largely untested, with only a few permits issued so far. States like Texas, Louisiana, North Dakota, and Wyoming have advanced in developing their permitting frameworks. However, securing the needed real property rights for CCUS projects poses complex legal issues, such as determining the ownership of geologic formations for CO2 injection, acquiring pore space rights, and navigating the transition of oil and gas reservoirs to permanent carbon storage formations.
In summary, while federal initiatives provide a foundational layer of support for CCUS and DAC projects, state-specific actions are pivotal in addressing the nuanced challenges and opportunities these projects face.
Reach out to us to see how Energy Transition Finance can help navigate the funding opportunities for carbon capture, storage, and utilization and the billions of dollars available for funding the industrial and energy decarbonization projects the world needs to meet its climate goals.