Among the orphaned bills of the 2016 legislative session is one that not only found broad-based bipartisan support — a rarity this past session — but one that could play a very important role in strengthening the Bakken oil and gas sector and the coal industry in Montana and North Dakota.
The 45Q bill, introduced by U.S. Sen. Heidi Heitkamp (D-N.D.) and U.S. Sen. Sheldon Whitehouse (D-RI) seeks to extend the life of carbon sequestration tax credits and make them more usable by industry.
In proposing the bill, Heitkamp said the existing program’s credits are insufficient to stimulate real financing for carbon capture and utilization projects, and that the 75 million ton cap on total carbon captured was creating financial uncertainty. According to IRS figures, 35 million tons have already been claimed, and an unknown number of tons for proposed projects are still outstanding, raising questions as to whether any future projects can be incentivized for what is still a very expensive proposition while the technology and infrastructure are still in development stages.
Heitkamp’s bill would have increased flexibility in using the tax credit, encouraging a wider range of carbon capture and sequestration models by lowering the threshold of carbon capture from 500,000 to 100,000 tons. That would allow smaller facilities such as fertilizer manufacturers to qualify for the credit. The bill also allowed transferral of the credit to the entity sequestering or using the carbon dioxide, making it more flexible to create a financially feasible deal. The 75 million metric ton cap and $20/$10 per metric ton credit amounts were maintained for projects already using or qualifying for the credit.
The bill had eight Republican and 10 Democratic cosponsors in the Senate, and 30 Republican and 15 Democratic co-sponsors representing 25 states in the House. Sen. Majority Leader Mitch McConnell (R-KY) was among Republican co-sponsors of the bill, and U.S. Sen. Jon Tester (D-Mont.) was among MonDak legislators signing on as a co-sponsor.
Proponents have said they expect to reintroduce Heitkamp’s bill next session, hoping it can find a home under the incoming presidential administration.
Meanwhile, U.S. Sen. John Hoeven (R-N.D.), U.S. Sen. Steve Daines (R- Mont.) and U.S. Rep. Ryan Zinke (R-Mont.) also introduced a late-session 45Q bill of their own, which would extend the credit’s use to more enhanced oil recovery efforts by aligning tax law with what EPA regulations already acknowledge.
“Our legislation is a straightforward fix that will encourage more companies to use enhanced oil and gas recovery methods,” Hoeven said. “Clarifying the 45Q tax credit is a simple way to encourage more carbon dioxide sequestration. This legislation is good for taxpayers and good for the environment.”
Montana Petroleum Association executive director Alan Olson said the Heitkamp bill has a lot of good intentions, but doesn’t cover certain needs for the oil and gas industry. Right now, oil and gas producers can get credits only if the sequestered carbon dioxide is put into what the tax law defines as a “geologically secure formation,” which is presently limited to a Class 6 oil well. That leaves Class 2 oil wells out, Olson said, even though they are also able to sequester carbon dioxide effectively.
“The other big problem Heitkamp’s bill would have is the fiscal impact to the national budget,” Olson said. “They don’t have enough money. It’s going to turn into a heck of a lot of money.”
Olson said he’d like to see the incoming presidential administration follow up on the matter, though, and suggested that carbon dioxide pipelines could align with the energy infrastructure promises Trump has made.
That is an argument Brad Crabdree, vice president for fossil energy at the Great Plains Institute, a Minnesota-based energy policy group, is eager to make to the next administration. Crabdree is also a member of the National Enhanced Oil Recovery Initiative. That coalition has also thrown its support to the Heitkamp measure.
“Mr. Trump hasn’t said much on the issues in terms of this policy except to say he wants to support jobs in coal country and energy country and increase American production,” Crabdree said. “This is an obvious fit in that if coal is to be viable long-term, technology to capture carbon dioxide will be essential. No one will invest in new coal without them. That’s sort of independent of EPA regulations. The market is just moving in that direction.”
It’s a game changer, too, in terms of Bakken oil and gas. Scientists estimate that the present well completion technology is leaving behind 95 percent of the available resource in tight-oil shales. Getting even 2 or 3 percent more of that out is a more than economically feasible proposition for Bakken wells. Some wells in the Bakken core have already achieved Middle East breakevens.
Successful enhanced oil recovery can help widen that to additional areas of the Bakken.
Deploying carbon dioxide capture technology to maximum effect will require new infrastructure, though, Crabdree said, and that dovetails with another Trump promise to build the country’s energy infrastructure.
Right now there are 4,600 miles of carbon dioxide pipelines in the United States, including one that runs from Wyoming to Montana and serves Denbury Offshore’s Bell Creek field. They are already using enhanced oil recovery, and agencies like the Energy and Environmental Research Center are meanwhile looking into such questions as stability of the storage techniques and best practices for enhancing the technology.
“Carbon dioxide pipelines ought to be part of Trump’s vision for infrastructure for this country,” Crabdree said. “Here is a way to continue using fossil fuels while at the same time addressing a public concern that is motivating a lot of opposition to oil and gas and coal production. Here is a way to sustain these industries going forward, and all the jobs and benefits that come with that. We are still quite a ways from being energy independent, but here’s a chance to further reduce the oil we are importing and that’s hundreds of billions of dollars staying at home over time that would otherwise flow out. It means jobs and investment all over large swaths of the country, not just the Northern Plains and oil and gas areas.”
Building the pipelines would also create new opportunities in adjacent industries — the steel industry, for example.
“You start to think about the jobs, the economic development ramifications of this, and it quickly becomes clear that it is beneficial to the whole country,” Crabdree said. “And at the same time, you are reducing emissions. Regardless of your political perspective, we’re seeing this kind of policy, rewarding capture of carbon dioxide that would otherwise be a pollutant, and turning it into an opportunity. Everyone wins from that.”