Bennet Amendment Would Allow PAB Use for Carbon Capture, Storage Facilities

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WASHINGTON – Sen. Michael Bennet has filed an amendment to the energy bill pending in the Senate that would allow tax-exempt private-activity bonds to be used to help power plants and industrial facilities finance projects to capture and store carbon dioxide.

The amendment is basically the Carbon Capture Improvement Act of 2015 that the Colorado Democrat introduced on Nov. 19.

Carbon capture and storage (CCS) facilities are designed to siphon off CO2 from power plants emissions and industrial facilities and either store it underground or sell it for other uses. Oil companies can inject it underground to recover more oil.

The amendment would create a new category of exempt-facility bonds, which are tax-exempt private-activity bonds. The bonds could be used to entirely finance CCS facilities that capture and store at least 65% of the CO2 produced. If the capture and storage rate for a CCS facility is less than 65%, then bonds could be issued in an amount equal to the percentage of CO2 that would be captured and stored.

The bonds could be issued with only a quarter of the amount of volume cap to minimize competition with other projects for PAB cap. For example, if a borrower wants to issue $400 million of bonds to finance a CCS facility, it would need to only obtain $100 million of volume cap from the state.

Most PABs are issued under state volume caps, which are the greater of $100 per capita or $302.88 million in 2016, according to the Internal Revenue Service. Each state has a limited amount of volume cap. Unused cap can be carried over three years.

The amendment would ensure that if a governmentally-owned power plant or other facility finances a CCS facility and then contracts with a private company to take the CO2, this will not give rise to private use and payments that would make the governmental owner's tax-exempt bonds taxable.

The legislation would apply to obligations issued after Dec. 31, 2015.

Proponents say CCS facilities will help coal-fired power plants and other facilities reduce their CO2 output, meet environmental requirements and help avoid climate change. They say tax-exempt financing will help spread out the high costs of such facilities over a longer period of time.

Congress allowed tax-exempt private activity bonds to be used to finance pollution control facilities from 1968 through part of 1986. But the Tax Reform Act of 1986 eliminated these financings, primarily because of Congress' concern about the federal revenue losses.

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