Carbon Sequestration Overview & Tax Planning Importance
You may have heard about carbon sequestration opportunities with the new tax incentives in the Inflation Reduction Act (“IRA”), but what is it, why does it matter, and how will it contribute to the energy transition? Once we have that base knowledge, we can explore the tax credits, like 45Q credits, available for projects in future posts.
Carbon dioxide (CO2) sequestration, often referred to as carbon sequestration, is a set of technologies aimed at capturing, storing, or utilizing carbon dioxide from the atmosphere or directly from emission sources. This process is critical in the global effort to mitigate climate change, as it helps reduce the overall concentration of CO2, a predominant greenhouse gas (GHG), in the Earth's atmosphere.
Understanding the Urgency
The urgency for CO2 sequestration arises from the context of global warming and climate change. Since the Industrial Revolution, human activities, particularly the burning of fossil fuels like coal, oil, and natural gas for energy and transportation, have significantly increased atmospheric levels of CO2. Deforestation and certain industrial processes also contribute to these emissions. The accumulation of CO2 and other greenhouse gases in the atmosphere traps the sun's heat, leading to the greenhouse effect, which is responsible for the ongoing changes in global climate patterns.
According to the Intergovernmental Panel on Climate Change (IPCC), urgent and substantial reduction in greenhouse gas emissions is necessary to limit global warming to 1.5°C above pre-industrial levels, a threshold beyond which the most catastrophic impacts of climate change may be unavoidable. Given the scale of existing emissions and the reliance of modern economies on carbon-intensive activities, CO2 sequestration presents a way to counterbalance these emissions by removing CO2 from the atmosphere or preventing its release.
Basic Mechanism
The basic mechanism behind CO2 sequestration involves capturing carbon dioxide at the source or from the atmosphere, transporting it to a storage location, and isolating it from the atmosphere long-term. This can involve physical, chemical, or biological processes, and the captured CO2 can be stored in several types of geological formations, used to cultivate biomass, or even converted into useful products.
Techniques of CO2 Sequestration
Carbon Capture and Storage (CCS):
Pre-combustion Capture: This method involves gasifying fuel (coal, natural gas) to produce a "synthesis gas," primarily a mixture of hydrogen and carbon monoxide. The carbon monoxide is reacted with steam to produce CO2, which can be captured, and hydrogen, which can be used as clean fuel.
Post-combustion Capture: This is the most common method and involves capturing CO2 after the combustion of fossil fuels, as the flue gases exit power plants or industrial facilities. Various technologies, like amine-based solvents, are used to absorb CO2 from the flue gas.
Oxy-fuel Combustion: Here, fuel is burned in pure oxygen instead of air, resulting in a flue gas composed mostly of CO2 and water, which can be easily separated.
Once captured, the CO2 is compressed and transported, usually via pipelines, to suitable storage sites.
Geological Sequestration: After transport, CO2 is often stored underground. Suitable geological storage sites include:
Depleted Oil and Gas Reservoirs: These have natural rock formations that previously contained oil or gas, providing a high degree of confidence in their ability to store CO2.
Deep Saline Formations: These porous rocks are saturated with brine and are common worldwide, offering large storage capacity.
Unminable Coal Seams: CO2 can be adsorbed into coal seams that are too deep to be mined economically.
In geological settings, CO2 is injected deep underground (usually more than one kilometer), and multiple natural mechanisms prevent it from leaking back to the atmosphere, including structural traps, residual trapping, solubility trapping, and mineral trapping.
Carbon Utilization: Captured CO2 can be used or "recycled" into products, a process known as Carbon Capture, Utilization, and Storage (CCUS). CO2 can be used for:
Enhanced Oil Recovery (EOR): Injected CO2 helps extract hard-to-reach oil, and a portion of CO2 remains stored underground.
Chemical Conversion: CO2 is converted into industrial chemicals, fuels, or building materials.
Algae Cultivation: CO2 is used to grow algae, which can be converted into biofuels or animal feed.
Direct Air Capture (DAC): These systems use chemicals to selectively absorb CO2 from the air. Although the concentration of CO2 in the atmosphere is much lower than in flue gases, DAC can be done anywhere, independent of emission sources, and is permanent. However, it currently requires significant energy, making it costly and less scalable without access to cheap, renewable energy.
Biosequestration: This involves the use of natural biological processes to capture and store carbon. Examples include:
Afforestation and Reforestation: Planting new forests or replenishing existing ones increases the amount of CO2 absorbed from the atmosphere through photosynthesis.
Soil Management: Certain agricultural practices can enhance the ability of soils to absorb and retain carbon.
Blue Carbon: Coastal ecosystems like mangroves, salt marshes, and seagrasses can sequester large amounts of carbon, sometimes at higher rates than terrestrial forests.
Challenges and Future Prospects
Despite its potential, CO2 sequestration faces numerous challenges. Capturing and storing CO2 is energy-intensive, requiring approximately 10-40% of a power station’s capacity, known as the "energy penalty." There are also concerns about the long-term integrity of storage sites, potential leakage, environmental impacts, and transportation risks.
Economically, without a price on carbon or substantial government incentives, CO2 sequestration was more expensive than releasing CO2 into the atmosphere. Thus, its adoption required strong regulatory frameworks and international cooperation. The Inflation Reduction Act has provided significant American incentives making more carbon sequestration projects financially viable than ever before - make sure you have a great energy tax lawyer, like Drew Willey Law, to appropriately plan and take advantage of these opportunities!
Advancements in technology are reducing costs and increasing the efficiency of carbon capture and storage systems. For instance, innovations in materials for CO2 absorption and advances in DAC technology are promising. Similarly, the development of carbon utilization strategies is creating a market for captured CO2, potentially making sequestration projects even more economically viable.
Furthermore, integrating CO2 sequestration with renewable energy sources could address the issue of energy penalty. For example, excess energy from wind or solar power could power DAC systems, creating a truly carbon-negative solution.
Conclusion
CO2 sequestration is not a silver bullet for climate change mitigation. It's one of several strategies, alongside reducing emissions, adopting renewable energy, and increasing energy efficiency, that must be pursued to limit the impacts of climate change. However, given the current levels of atmospheric CO2 and the ongoing reliance on fossil fuels, it's an essential component of a comprehensive approach to stabilizing global climate. Continued research, development, and policy support are critical for overcoming the challenges facing CO2 sequestration and for it to reach its full potential in the fight against climate change. We’re closer than ever before. You must have an a tax planning attorney who is willing to know your business and strategically partner with you to realize the full financial potential with carbon sequestration projects. Contact us about taking advantage today!