WASHINGTON – Identical bipartisan bills have been introduced in the House and Senate to allow tax-exempt private activity bonds to be used to help power plants and industrial facilities finance the purchase and installation of equipment to capture and store the carbon dioxide they emit.
The bills follow President Trump’s signing of legislation in February to undo an environmental law that restricted coal mining and to undo a financial disclosure requirement for coal and other energy companies.
Carbon capture and storage or sequestration (CCS) projects are designed to siphon off carbon dioxide (CO2) from power plant emissions and industrial facilities so that it can be stored underground or sold for other uses. They are sometimes paired with enhanced oil recovery projects (EOR), in which the CO2 is injected underground in oil fields to recover more oil.
Sens. Michael Bennet, D-Colo., and Rob Portman, R-Ohio, introduced The Carbon Capture Improvement Act of 2017 in the Senate on Wednesday. Reps. Carlos Curbelo, R-Fla., and Marc Vesey, D-Texas, offered the same bill in the House on Thursday. The bills are the same as one Bennet and Portman introduced in early 2015 and also to an amendment Bennet tried to add to the energy bill in the Senate last year.
“This legislation reduces carbon pollution by making it more cost effective for our power plants and industrial facilities to invest in carbon capture equipment,” said Bennet. “Even in today’s political climate, this bill is proof that Democrats, Republicans, labor unions and environmentalists can come together to advance policies that will protect our planet and create good-paying jobs.”
“Private activity bonds are a well-developed tool that has been used for decades to cut the cost of financing a broad range of energy infrastructure,” said Dan Reicher, executive director of Stanford’s Steyer-Taylor Center for Energy Policy and Finance. “The time is right to apply them to accelerating carbon capture projects with major economic and environmental benefits – and little costs to taxpayers.”
The legislation 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 projects that capture and store at least 65% of the CO2 produced. If the capture and storage rate for a CCS project 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 bills are written so that if a power plant has four units that each produce a ton of CO2 and the operator wants to build a $60 million CCS project that will capture and store 80% of the CO2 from the first unit, the entire $60 million cost of the CCS project can be financed with the new exempt facility bonds, without having to take into account the other three units, one industry official said.
The bonds could be issued with only a quarter of the amount of volume cap normally needed 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. The 2016 formula for the caps was the greater of $100 per capita or $302.88 million, according to the Internal Revenue Service. Though each state has a limited amount of volume cap, any unused amount can be carried over three years.
The bills also specify that, if a governmentally-owned CCS project that otherwise has no private business use sells the CO2 to a private party under a contract with that private party, the contract will not be considered to create private use.
Lawmakers may soon introduce separate bills to provide improved tax credits to help finance EOR projects to pump CO2 into oil fields to recover more oil.
NRG Energy, Inc., one of the country’s largest owners of coal-fired power plants, is a major backer of the legislation. It used the proceeds of PABs to finance a system to capture CO2 in a 250 megawatt portion of the exhaust stream of its W.Q. Parish coal plant in Texas. The CO2 from the Parish project was to be used for enhanced oil recovery in the West Ranch oilfield through NRG subsidiary, Petra Nova.
But the $127.1 million of PAB, issued in 2012 by the Fort Bend County, Texas Industrial Development Corp. to finance the capture of CO2 from the Parish plant could be used only because the project was in the Hurricane Ike Disaster Zone. Congress and the Internal Revenue Service authorized the use of PABs in counties hurt by Hurricane Ike for the financing of any land or depreciable property in that area.
