OVERVIEWOFU.S.FEDERALANDSTATEFINANCIALINCENTIVESANDOTHERPOLICIESFORCOMMERCIALCARBONCAPTUREDEPLOYMENT

PRESENTEDTO:CARBONCAPTURE,UTILIZATIONANDSTORAGEINKANSASWORKSHOP

SEPTEMBER21,2017WICHITA,KS

BRADCRABTREEVICEPRESIDENTFORFOSSILENERGY

GREATPLAINSINSTITUTE

Overview

• Introductionandrationale• BackgroundonNationalEnhancedOilRecoveryInitiative• Proposedfederalincentivesforcarboncapture

CarbonCaptureWorks:Nearly50YearsofCommercial-ScaleCarbonCaptureandGeologicStorageinNorthAmerica

• 1972:ValVerdeGasProcessingPlantsinTexas• 1982:KochNitrogenCompanyEnidFertilizerPlantinOklahoma• 1986:ExxonShuteCreekGasProcessingFacilityinWyoming• 2000:DakotaGasification’sGreatPlainsSynfuelsCoalGasificationPlant

inNorthDakota• 2003: CoreEnergy/SouthChesterGasProcessingPlantinMichigan• 2009:Chaparral/ConestogaEnergyPartners’Arkalon BioethanolPlantin

Kansas• 2010:OccidentalPetroleum’sCenturyPlantinTexas• 2012:AirProductsPortArthurRefineryHydrogenProductioninTexas• 2012:ConestogaEnergyPartners/PetroSantander BonanzaBioethanol

PlantinKansas• 2013:ConocoPhillipsLostCabinGasProcessingPlantinWyoming• 2013:Chaparral/CVREnergyCoffeyvilleFertilizerGasificationPlantin

Kansas• 2014:SaskPowerBoundaryDamCoalPowerPlantPost-Combustion

CaptureRetrofitinSaskatchewan• 2016:EmiratesSteelPlantinAbuDhabi,UnitedArabEmirates• 2017: NRGPetraNovaCoalPowerPlantPost-CombustionRetrofitin

Texas

ScalingUpCarbonCapturewillDeliverSignificantEnergyProduction,EconomicandEmissionReductionBenefitsforourNation

• Oilandgasindustrypurchases~70milliontonsofCO2 peryear,transportsitover4,500milesofCO2 pipelines,andinjectsittoyield4percentofdomesticU.S.oilproduction.

• U.S.hasthepotentialtoproduceanestimated28billionbarrelsofeconomicallyrecoverableoilwithtoday’sindustrybestpracticesandover81billionbarrelswithnextgenerationtechniques.

• CO2-EORresultsinanestimatednetlifecycleCO2 emissionsreductionof37percent,includingtheadditionaloilproduced.*

• Providesfiscalbenefitsfromroyaltiesandtaxesonoilproductionanddirectlysupportshigh-payingjobsacrossarangeofsectors.

*Source:IEA

Producingthatoilwithman-madeCO2 wouldresultinthesafeandpermanentgeologicstorageof11to24billiontonsofCO2—theequivalentof55to120GWofcoal-firedgenerationover35years,orroughly6-12yearsofU.S.powersectorCO2 emissions.

BackgroundonNEORI• Launchedin2011.• ConvenedbyGreatPlainsInstituteandCenterforClimate&Energy

Solutions.• Coalitionincludescoal,oil,electricpower,ethanol,industrialand

technologycompanies,laborunions,andenvironmentalorganizations.• CallsforframeworkofU.S.federalandstateincentivestoaccelerate

commercialdeploymentofcarboncapture.• Goal:ClosethegapbetweenthecostofCO2 captureandpipeline

transportandtherevenuereceivedfromthesaleofCO2 foruseinEOR,thusdrivingprivateinvestmentintechnologydeployment,innovationandcostreductionsovertime.

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DiverseMembershipReflectsBroadSupportforCarbonCaptureandCO2-EOR

Coal• ArchCoal• CloudPeak• PeabodyEnergy

ElectricPower• GreatRiverEnergy• NRGEnergy• SummitPowerGroup• TenaskaEnergy

OilandGas• CoreEnergy• OccidentalPetroleumCorporation

Ethanol• ArcherDanielsMidland• ConestogaEnergyPartners,LLC• WhiteEnergy

IndustrialSuppliersofCO2/TechnologyVendors• AirLiquide• AirProducts• Alstom• GEOil&Gas• JupiterOxygen• Linde• Praxair

ProjectDevelopers• EBRDevelopment,LLC• LakeCharlesMethanol

EnvironmentalandEnergyPolicyNGOs• CenterforCarbonRemoval• CleanAirTaskForce• EnergyInnovation&ReformProject• GlobalCarbonCapture&StorageInstitute• JacksonHoleCenterforGlobalAffairs• NaturalResourcesDefenseCouncil• WyomingOutdoorCouncil

Labor• AFL-CIO• InternationalBrotherhoodofBoilermakers• InternationalBrotherhoodofElectricalWorkers• SMARTTransportationDivision• UnitedMineWorkersofAmerica• UtilityWorkersUnionofAmerica

Observers• ChaparralEnergy• EnhancedOilRecoveryInstitute(UniversityofWY)• InterstateOilandGasCompactCommission• LI-CORBiosciences• MitsubishiHeavyIndustriesofAmerica,Inc.• Tellus OperatingGroup

FederalIncentivesPackageforCarbonCapture/CO2-EORKeyGoal:• Reduceeconomicbarrierstocommercialdeploymentofindustrialandpower

plantcarboncaptureprojects.

• Variousincentivesandpoliciescanaddressdifferenteconomicneedsofacaptureproject:

ExpandandreformexistingfederalSec45Q

taxcredit

Authorizeprivateactivitybonds(PABs)forCO2captureprojects

AuthorizemasterlimitedpartnershipsforCO2captureprojects

TopCoalitionPriority:Extend,ReformandExpandU.S.FederalSection45QTaxCreditforCO2 Storage

Keyreformelements:• Increasefinancialcertainty forcarboncaptureprojectinvestorsbyeliminatingtheexistingcaponcredits(currentcreditabouttorunout).

• IncreasethecreditvaluetoclosethegapbetweenthecostofcarboncaptureandrevenuefromthesaleofCO2 forEOR.

• Expandparticipationtoadditionalindustrysectorsbyloweringtonnagethresholdforeligibilityofcarboncaptureprojects.

• Enhanceflexibility inutilizationofthetaxcredittoallowformultiplebusinessmodels,includingparticipationoftax-exemptelectriccooperatives,municipalutilitiesandmanyotherprojectdevelopers.

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BipartisanSupportfortheU.S.45QTaxCreditUnparalleledforEnergyLegislationofItsKind

• InJuly,S.1535,theFUTUREAct(Furtheringcarboncapture,Utilization,Technology,Undergroundstorage,andReducedEmissions),wasintroducedwithonequarterofU.S.Senateco-sponsoringthebill.

• Leadsponsors:Heitkamp(D-ND),Capito(R-WV),Whitehouse(D-RI),Barrasso (R-WY),Graham(R-SC)andKaine (D-VA).

• Otheroriginalco-sponsors:– Republicans—Cochran(MS),Portman(OH),andBlunt(MO)– Democrats—Schatz(HI),Manchin(WV),Casey(PA),Duckworth(IL),Franken(MN),Brown(OH),

Durbin(IL),Booker(NJ),Coons(DE),Klobuchar(MN),Peters(MI),Donnelly(IN),Warner(VA),Bennet(CO)andTester(MT)

– Independent—King(ME)• HouseAgricultureCommitteeChairmanConaway(R-TX)introducedH.R.3761,theCarbonCaptureAct,

lastweek:– 32co-sponsorsspanningpoliticalspectrum(23Rs and9Ds).

• CosponsorsfromAlabama,Arizona,California,Colorado,Florida,Georgia,Illinois,Kentucky,Michigan,Minnesota,Mississippi,NewMexico,NewYork,NorthCarolina,NorthDakota,Ohio,Oklahoma,Pennsylvania,TexasandWestVirginia 9

KeyElementsof201745QLegislationHouse:CarbonCaptureAct

•Specifications•Keepsexisting45Qinplaceforcurrentprojects•CreditforEORstorageandsalinestorageincreasesto$35permetricton.Thereisonlyonecredit.

•Rampscreditfor10years•Reducesfacilityeligibilitythresholdfrom500,000to100,000tonsofannualCO2captureforallfacilities– was150,000inlastyear’sbill

• Includesstrongertransferabilityprovisioninlastyear’sSenatebill

•Authorizesprogramforprojectsthatcommenceconstructionwithin7years

•Creditcanbeclaimedfor15yearsonceplacedinservice

•ProvideseligibilityfornewformsofCO2utilizationbeyondEORat$35perton

•Addslanguagetoallowcarbonmonoxidecaptureanddirectaircapturetogetthecredit

•Creditauthorizationlanguageischangedtoallowallprojectsthat“haveneverreceived45Qtaxcreditbefore”toqualify

Senate:FUTUREAct

•Specifications•Keepsexisting45Qinplaceforcurrentprojects•CreditforEORstorageincreasesto$35permetrictonand$50forsalinestorage

•Rampscreditover10years•Reduces500,000tonthresholdto100,000forindustrialand25,000thresholdfornon-EORutilization.Retains500,000thresholdforelectricgeneratingunits

•Includesstrongertransferabilityprovisionfromlastyear’sbill

•Authorizesprogramforprojectsthatcommenceconstructionwithin7years

•Creditcanbeclaimedfor12yearsonceplacedinservice

•ProvideseligibilityfornewformsofCO2utilizationbeyondEORat$35perton

•Addslanguagetoallowcarbonmonoxidecaptureanddirectaircapturetogetthecredit

•Creditauthorizationlanguageischangedtoallowelectricpowerprojectsthat“haveneverreceived45Qtaxcreditbefore”toqualify

ComplementaryFederalPolicies:Tax-ExemptPrivateActivityBonds

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• TheCarbonCaptureImprovementActmakescarboncaptureprojectseligibleforPABs,providingprojectdeveloperstax-exemptdebt.

• PABswouldlowerprojectfinancingcostsandcomplementastrengthenedandextended45Qtaxcredit.

• Bill'slowfiscalscoreof$126millionovertenyearswouldmakeitanattractivesupplementto45Q.

• S.843:IntroducedbySens.Portman(R-OH)andBennet(D-CO)thisspring.

• H.R.2011:IntroducedbyReps.Curbelo(R-FL)andVeasey(D-TX)ascompanion.

ComplementaryFederalPolicies:MasterLimitedPartnerships

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– S.1656andH.R.2883,theMasterLimitedPartnershipsParityAct,introducedwithbipartisansupportinprevioustwoCongresses.

– AllowscarboncapturefacilitiestoqualifyfortheMLPstructure,combiningtaxbenefitsofapartnershipwiththeabilitytoraisecapitalinpublicequitymarkets.

– Sen.Coons(D-DE)andGOPandDemocraticco-sponsorsexpectedtointroducethelegislationagainthisyear.

– ExpectedtofurtherexpandeligibilitytoincludecarboncaptureprojectsforCO2 utilizationbeyondEOR.

PotentialLargeCutstoFederalFundingforCarbonCaptureResearch,Development,Demonstration&Deployment(RDD&D)

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• ProposedAdministrationcutstoU.S.DOEFY18fossilenergybudgetcouldimpedefuturedevelopmentandcommercialdeploymentofnextgenerationcarboncapturetechnologies:– ReducesDOE’scarboncapture,CO2 storage,advancedenergysystemsandcross-cuttingprogramsby17to84percentfromFY16,withanoverallcutofover50percent;

– EliminatesInnovativeTechnologyLoanGuaranteeProgram;and– Targetslargestcutstopilotsandfeedstudiesforadvancedtechnologies.

• BipartisanoppositiontotheAdministration’sbudgetproposalinCongresshasleadtoproposedcutsbeingrestoredintheHouseandnearlyrestoredintheSenate.

LCFS and CCUS• LCFS policies in California and British Columbia, under

development/consideration in Oregon and Canada.• For biofuels that are imported into these states, policies

provide an incentive for lower carbon intensity• Ethanol + carbon capture lowers ethanol carbon intensity by

~30%• At current CA LCFS credit prices, could be worth

~$0.20/gallon of ethanol• CA is considering whether to make CI reductions from CCUS

eligible – decisions in the next few months

Average LCFS price of $91/tCO2 over the last 12 months

ARB(2016)tradingdata

McCoy, 2017 LLNL

THANK YOU

BRAD CRABTREEVICE PRESIDENT FOR FOSSIL ENERGY

9195 70TH AVENUE, SEASHLEY, ND 58413, USA

(701) 647-2041 | BCRABTREE@GPISD.NET

WWW.BETTERENERGY.ORG

STATE CO2-EOR DEPLOYMENT WORK GROUP OVERVIEW

Presentation toCarbon Capture, Utilization and Storage in Kansas Workshop

September, 2017Matt Fry, Office of Wyoming Governor Matt Mead

Overview

• Background on State CO2-EOR Deployment Work Group

• States’ Carbon Capture Incentive Recommendationso Federal Tax and Other Incentiveso State Tax Policy Options

• States’ CO2 Pipeline Infrastructure Recommendations

• States’ Electricity Market Design Recommendations

Leadership at the U.S. State Level: State CO2-EOR Deployment Work Group

■ Co-convened by Governor Matt Mead (R-WY) and Governor Steve Bullock (D-MT). Staffed by GPI.

■ Launched in 3Q 2015:– Officials from 14 states*– Leading industry and NGO stakeholders– CO2–EOR Experts

■ Objectives: – Help policy-makers better understand states’

potential for carbon capture and CO2-EOR;– Recommend strategies and policies to states

and the federal government;– Support state policy-makers in implementing

those recommendations; and– Encourage enactment of federal policies that

complement state priorities.

*State participation includes governors’ staff, cabinet secretaries, utility commissioners and agency and commission staff.

Growing State Support for Carbon Capture & CO2-EOR ■ In 2015, Great Plains Institute staff traveled to nine states to brief governors’ staff and

state officials and request support for federal and state policy resolutions and recruit Work Group participation.

■ Since then, state officials from across the U.S. have signaled growing support for policies to foster commercial deployment of carbon capture and CO2-EOR. This has provided an important new base of support for the work of the federal coalition.

Year Organization Resolution Highlights

2015 Western Governor’s Association Recognized economic and environmental benefits of carbon capture and CO2-EOR; called on Congress to extend and strengthen the federal Sec. 45Q tax credit.

2015 Southern States Energy Board Emphasized need for federal incentives and state policy measures.

2016 National Association of Regulatory Utility Commissioners

Highlighted economic, energy production and carbon mitigation benefits, and the importance of state and federal action.

Putting the Puzzle Together: State & Federal Policy Drivers for Growing America’s Carbon Capture & CO2-EOR Industry

• Major report (http://www.betterenergy.org/EORpolicy) released in December by participating state officials.

• Federal incentive recommendations:o Extend, reform and expand the existing Section 45Q Tax Credit

for Carbon Dioxide Sequestration;o Establish federal price stabilization contracts, or contracts for

differences (CfD), for the CO2 sold from capture facilities to EOR operators; and

o Make carbon capture eligible for tax-exempt private activity bonds (PABs) and for master limited partnerships (MLPs).

• Optimizing existing state taxes to support carbon capture and CO2-EOR deployment:

– Sales taxes on equipment purchased to build a carbon capture facility;

– Property taxes on the carbon capture facility;– Sales taxes on equipment acquired to adapt an oilfield to CO2-

EOR operations; and– Oil and gas taxes, such as production and severance taxes.

State Work Group’s U.S. Federal CO2 Pipeline Infrastructure Recommendations

■ In February, State CO2-EOR Deployment Work Group released 21st Century Energy Infrastructure: Policy Recommendations for Development of American CO2 Pipeline Networks (http://www.betterenergy.org/American_CO2_Pipeline_Infrastructure) with three primary recommendations:1. Make CO2 pipelines a priority component of a

broader U.S. national infrastructure agenda;2. Leverage private capital with federal financing

for large-volume, long-distance trunk CO2pipeline infrastructure; and

3. Support CO2 pipeline corridor planning and streamlined permitting.

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Map of 5 Potential CO2 Pipeline Corridors

Benefits of Proposed a National-Scale CO2 Pipeline Buildout■ Work Group recommends five major CO2 pipeline corridors equivalent to the

current Cortez pipeline (30” @ 30 million tpy), the world’s largest.

■ Development of this magnitude would expand on existing pipeline networks to create a national infrastructure to supply up to an additional 150 million tons of CO2 annually for EOR and storage, resulting in an estimated:– Tripling of domestic EOR production, or 375 million barrels of oil per year;– Reduction in U.S. oil imports of one-fifth from current levels, valued at US$30

billion;– Capture of over four percent of current U.S. stationary source emissions from

power plants and industrial facilities;– Capital investment in carbon capture, CO2 pipeline construction, and EOR

equipment of US$75 billion; and– Annual economic activity of US$30 billion.

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U.S. Federal CO2 Pipeline Financing Options

■ Work Group released a menu of federal CO2 pipeline financing options (http://www.betterenergy.org/C02PipelineFinancing) to President Trump and Congress in April, including:

– Potential tax credit proposal to equity-financed portion of pipelines;

– Allow tax-exempt private activity bonds for debt-financed portion;

– Authorize federal loans through expansion of U.S. DOT’s Transportation Infrastructure Finance and Innovation Act or modeled after it;

– Provide loans through U.S. DOE’s Loan Program Office for debt portion of projects;

– Allow accelerated depreciation for an entire CO2 pipeline

■ Currently working with Senate and House members to pursue bipartisan legislation for CO2 pipeline infrastructure.

State Work Group Paper on Carbon Capture in Wholesale Electricity Markets

■ Carbon capture-equipped power plants face similar challenges to commercial viability in competitive wholesale markets as do nuclear and other dispatchable low and zero-carbon generation resources.

■ In June, the Work Group released Electricity Market Design and Carbon Capture Technology: The Opportunities and Challenges (http://www.betterenergy.org/publications/electricity-market-design-and-carbon-capture-technology), a report on market design and measures the federal government, states, and regional grid operators can take to recognize the broader economic, reliability and environmental benefits that power plants with carbon capture contribute.

THANK YOU!QUESTIONS?