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Environmental Edge
December 30, 2021

The Infrastructure Investment and Jobs Act—Carbon Capture Utilization and Storage

Environmental Edge: Climate Change & Regulatory Insights

Carbon capture utilization and storage (or sequestration) refers to the process of capturing carbon dioxide from sources of emissions and either reusing the carbon dioxide or storing it permanently underground. Carbon dioxide can be stored in different geological formations, including oil and gas reservoirs and deep saline reservoirs. To learn more about carbon capture and storage generally, consider listening to our TMT Time podcast discussing the topic.

Although still in its nascency due to costs, regulatory uncertainty, infrastructure, and technology needs, CCUS continues to be a central focus for the US in achieving its climate targets. In a previous client advisory we discussed how the White House Council on Environmental Quality (CEQ) issued a report to Congress on CCUS that outlines a variety of policy recommendations to bolster CCUS projects in the US CEQ asserted that the Administration “is committed to accelerating the responsible development and deployment of CCUS to make it a widely available, increasingly cost-effective, and rapidly scalable climate solution across all industrial sectors.”

In the Infrastructure Investment and Jobs Act (IIJA), Congress echoed these sentiments. Congress found that “carbon capture and storage technologies are necessary for reducing hard-to-abate emissions from the industrial sector,” large-scale deployment of CCUS “is critical for achieving mid-century climate goals” and CCUS “will drive regional economic development, technological innovation, and high-wage employment.” While most of the CCUS provisions address the sequestration and storage of captured carbon, the reuse of captured carbon is also an important aspect of the CCUS strategy.

Based on these findings, Congress:

  • Funded Demonstration and Pilot Projects
    • Congress appropriated $937 million for the Department of Energy to fund carbon capture large-scale pilot projects over FY22-FY25. Congress previously described the large-scale pilot projects in the Energy Policy Act. The large-scale pilot projects represent “the scale of technology development beyond laboratory development and bench testing, but not yet advanced to the point of being tested under real operational conditions at commercial scale.”
    • Congress appropriated $2.04 billion for the Department of Energy to fund carbon capture demonstration projects over FY22-FY25. Congress previously described the demonstration projects in the Energy Policy Act. The demonstration projects should “demonstrate substantial improvement in the efficiency, effectiveness, cost, and environmental performance of carbon capture technologies for power, industrial, and other commercial applications.”
  • Established Department of Energy Programs
    • A front-end engineering and design program for carbon dioxide transport infrastructure to enable deployment of CCUS technologies. Congress appropriated $100 million for the program over FY22-FY26.
    • A carbon dioxide infrastructure finance and innovation program to provide low-interest loans for carbon dioxide transport infrastructure projects. Congress appropriated $900 million for the program over FY22-FY26.
  • Expanded Department of Energy Programs
    • The carbon storage validation and testing program now includes commercial large-scale carbon sequestration projects focused on feasibility, site characterization, permitting and construction. Congress appropriated $2.5 billion for the program over FY22-FY26. The Department of Energy will manage the program funding, establish an application process, and select the projects for funding.
  • Provided Grant Funding for Carbon Utilization
    • The carbon utilization program allows states, local governments, or public utilities/agencies to procure and use commercial or industrial products that “use or are derived from anthropogenic carbon oxides.” Congress appropriated $310 million for this program over FY22-FY26.
  • Established a Program for 4-Regional Direct Air Capture Hubs
    • These hubs will be “a network of direct air capture projects, potential carbon dioxide utilization off-takers, connective carbon dioxide transport infrastructure, subsurface resources, and sequestration infrastructure located within a region.” The Department of Energy will select eligible projects based on the carbon intensity of the local industry, geographic diversity, carbon potential, proximity to fossil-producing regions, scalability, and employment. Congress appropriated $3.5 billion for the program over FY22-FY26.
  • Authorized Funding and Clarified Permitting for Carbon Dioxide Injection
    • Increases funding to the Environmental Protection Agency to permit Class VI wells for carbon dioxide geologic sequestration. Congress appropriated $25 million for the program over FY22-FY26.
    • Increases funding for states to establish their own Class VI permitting programs. Congress appropriated $50 million for the program over FY22-FY26.
    • Clarifies the Secretary of the Interior may grant a lease, easement, or right of way for activities related to long-term sequestration of carbon dioxide on the outer continental shelf. Thus resolving a longstanding legal question of how CCUS is managed in federal waters and clarifying the federal government has authority to permit injection notwithstanding the Ocean Dumping Act.

A key CCUS provision, not in the IIJA but rather in the still pending Build Back Better Act, is the modifications to the 45Q tax credit for carbon oxide sequestration. The version of the Build Back Better Act that the House of Representatives passed in November 2021:

  • extends the 45Q tax credit through 2031,
  • allows for direct pay of the credit,
  • lowers the project size requirements, but pairs that with a new percentage of carbon oxide released from the facility,
  • creates a direct air capture tax credit set at $180/ton for CCS and $130/ton for enhanced oil recovery, and
  • adds certain prevailing wage requirements and apprenticeship requirements.

We will continue tracking efforts to develop this technology. 

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.