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How much is captured CO2 worth?

Facilities using carbon capture usually can't sell large amounts of CO2 in commercial markets—but in the U.S., thanks to tax credits, they can get $85 a ton for burying it.

 

January 23, 2022

Carbon capture” technologies are used to separate carbon dioxide (CO2) from other gases—usually in the waste streams of power plants and industrial facilities that burn fossil fuels. In this way, the CO2 is kept out of the atmosphere, where it would contribute to climate change.
 
But carbon capture operations need something to do with all the CO2 they’re keeping out of the air. There are a few commercial markets for captured CO2, such as in carbonated beverages or greenhouses that use piped-in CO2 to grow plants. And there are other, more speculative proposals to transform CO2 into valuable products like plastics and fuel. But “utilization is very challenging,” says Howard Herzog, a Senior Research Engineer in the MIT Energy Initiative who has been working with carbon capture for over 30 years.

One problem, according to Herzog, is that “markets for CO2 are generally much smaller than the amount of CO2 we put out there.” Greenhouses and soda companies only need so much CO2, and if carbon capture grows enough to make a serious dent in climate change, it will quickly outstrip these markets.

It can also be hard to sell captured CO2 since these markets can get carbon from other, often cheaper sources. For instance, the CO2 pumped into greenhouses frequently comes from burning fuels like natural gas,1 while high-purity CO2 can be sourced from ammonia production in fertilizer plants,2 where it’s captured as part of normal operations and doesn’t need special carbon capturing technology.

Another issue is that many of the potential uses for CO2 undermine the climate benefits of capturing it in the first place. “If you’re capturing CO2 for climate reasons and you put it into soda pop, when people drink the soda pop it goes back into the atmosphere,” explains Herzog. “So you haven’t done anything in terms of reducing carbon emissions.” Meanwhile, converting captured carbon into a plastic or a fuel requires a lot of energy, and most of that energy isn’t clean. “Until we have enough low carbon energy to do that, it’s not going to make sense.”
 
If the commercial markets can’t absorb all the carbon we want to capture for climate reasons, what happens to all the excess captured CO2? Luckily, governments can step in to make carbon capture more profitable even if the free market doesn’t. Herzog explains that thanks to a federal tax credit known as 45Q, companies that capture carbon in the U.S. are probably getting better economic benefits by storing it underground than selling it.
 
Section 45Q of the U.S. Internal Revenue Code provides a tax credit for every metric ton of CO2 that’s captured and stored. Section 45Q was first introduced in 2008, and the amount paid for captured CO2 increased after the passage of the Inflation Reduction Act in August 2022.3
 
How much you get paid depends on what you do with the captured CO2, explains Herzog. It can either be injected and stored in underground geological formations, or used in enhanced oil recovery (EOR), where it’s pumped into oil reserves to squeeze more oil out. “You get 85 dollars a ton if you put it in a geologic formation and 60 dollars a ton if you use it for enhanced oil recovery.”
 
There’s also a special price for CO2 pulled directly from the atmosphere—a much more expensive process than capturing carbon from a smokestack. For CO2 captured via “direct air capture,” Section 45Q pays $180 for every ton stored in the ground and $130 when it’s used for EOR.

Section 45Q isn’t just putting a price on every ton of carbon that’s captured and stored; it’s giving the carbon capture industry a boost in other ways. When the Inflation Reduction Act passed last year, it made it easier for new carbon capture facilities to be eligible for the 45Q tax credits by, for instance, extending to 2033 when new facilities need to begin construction to be eligible.

The landscape for selling captured carbon to commercial markets may change in the future, but not in the near future, says Herzog. The amount of CO2 we can use is simply dwarfed by the CO2 that needs to be captured for climate reasons. In Herzog’s opinion, “if we’re going to do this on the billion ton a year level, most of it’s going to have to go into the ground.”

 

Thank you to Sepehr Senaye of Tehran, Iran, for the question. You can submit your own question to Ask MIT Climate here.

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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International license (CC BY-NC-SA 4.0).
Footnotes

1 Wang, Anran, et al. "CO2 enrichment in greenhouse production: Towards a sustainable approach." Frontiers in Plant Science, Vol. 13, 2022. doi:10.3389/fpls.2022.1029901

2 International Energy Agency: "Putting CO2 to use: Creating value from emissions." September 2019.

3 International Energy Agency: "Section 45Q Credit for Carbon Oxide Sequestration." Updated November 4, 2022; accessed January 23, 2023.