Carbon Capture Summit

USA 2023

Challenges for Gulf Coast Marjorie A. McKeithen

CCS Projects Senior Partner

October 24, 2023

joneswalker.com
WHAT IS CO2 CAPTURE AND
SEQUESTRATION?

© 2022 Jones Walker LLP

 CARBON CAPTURE AND SEQUESTRATION 101

CO2 Capture Equipment

Plant

CO2 Pipeline

Injection Well Continuous Monitoring &

Test Well

Cap Rock

Geology & Water Quality

Cap rock Confirmed During Testing
Pore Space /
Porous Sandstone
CO2
Porous Sandstone

Plume can extend for miles

© 2022 Jones Walker LLP joneswalker.com | 3

CARBON CAPTURE AND SEQUESTRATION 101

© 2022 Jones Walker LLP joneswalker.com | 4

WHY IS CO2 CAPTURE AND
SEQUESTRATION
A HOT TOPIC?

© 2022 Jones Walker LLP

WHY IS CO2 CAPTURE AND SEQUESTRATION A
HOT TOPIC?

• Federal and State Climate Change Initiatives

• Federal and State Incentives

© 2022 Jones Walker LLP joneswalker.com | 6

U.S. INITIATIVES

U.S. Initiatives
• “To reach the President’s ambitious domestic climate goal of net-zero
emissions economy-wide by 2050, the United States will likely have to
capture, transport, and permanently sequester significant quantities of
carbon dioxide (CO2).”
Source: Council on Environmental Quality Report to Congress on
Carbon Capture, Utilization, and Sequestration (June 2021)
• Billions dedicated to CCUS as part of Infrastructure Investment and
Jobs Act (2021).
• Federal tax credits were greatly enhanced as part of the Inflation
Reduction Act (2022).

© 2022 Jones Walker LLP joneswalker.com | 7

45Q FEDERAL TAX CREDITS: HISTORY

• Original Law
• Originally enacted by the Energy Improvement and Extension Act of
2008 (P.L. 110-343)
• Amended by the American Recovery and Reinvestment Tax Act of
2009 (P.L. 111-5)
• Amended by the Tax Increase Prevention Act of 2014 (P.L. 113-295)
• Current Law
• Amended by the 2018 Bipartisan Budget Act (P.L. 115-123) which
reformed and expanded the tax credit beginning after December 31,
2017
• Amended by the Taxpayer Certainty and Disaster Tax Relief Act of
2020
• Final Treasury Regulations issued January 6, 2021
• Amended by the 2021 Infrastructure and Jobs Act
• Amended by the 2022 Inflation Reduction Act

© 2022 Jones Walker LLP joneswalker.com | 8

45Q FEDERAL TAX CREDIT: AMOUNT

• Tax credit is allowed per metric ton of qualified carbon oxide captured
• Credit amounts depend on method of capture and use/storage after
capture:
• If captured via direct air capture:
• Sequestration: $180 per ton of carbon captured and
permanently stored
• Utilization: $130 per ton of carbon captured and used for
enhanced oil recovery or other industrial means
• If captured via other means:
• Sequestration: $85 per ton of captured and permanently stored
• Utilization: $60 per ton of carbon captured and used for
enhanced oil recovery and other industrial means

© 2022 Jones Walker LLP joneswalker.com | 9

45Q FEDERAL TAX CREDIT: QUALIFIED FACILITY

• Any industrial facility or direct air capture facility which construction

begins before January 1, 2033, and either
• Construction of carbon capture equipment begins before such date,
or
• The original planning and design for such facility includes installation
of carbon capture equipment
• And:
• In the case of a direct air capture facility - captures at least 1,000
metric tons
• In the case of an electricity generating facility – captures at least
18,750 metric tons
• In the case of any other facility - captures at least 12,500 metric tons

© 2022 Jones Walker LLP joneswalker.com | 10

45Q FEDERAL TAX CREDIT: WHO MAY CLAIM
THE CREDIT?

• The taxpayer that owns the carbon capture equipment and physically or
contractually ensures the disposal, utilization, or use as a tertiary
injectant of the carbon

• Annual election – the owner of the carbon capture equipment may make
an election to allow the credit to be given to the person/entity that
disposes or utilizes the carbon

© 2022 Jones Walker LLP joneswalker.com | 11

STATE INITIATIVES

State Initiatives
• “CCUS is anticipated to play a critical role in decarbonizing the global
economy by addressing high-intensity and hard-to-abate emissions
that will be necessary to reach net zero.”
Source: “Louisiana Climate Action Plan,” February 2022

• “Carbon capture and sequestration are important to Louisiana’s

efforts to reduce carbon dioxide emissions while maintaining jobs and
growing our manufacturing base.”
Source: Governor John Bel Edwards, October 14, 2021

© 2022 Jones Walker LLP joneswalker.com | 12

STATE CREDITS

• Low carbon-intensity products receive a credit or premium in

certain states:
• California
• Oregon
• Washington
• Canada also has price incentives for reduced carbon-intensity
products

© 2022 Jones Walker LLP joneswalker.com | 13

WHY THE GULF COAST?

© 2022 Jones Walker LLP

GOM Energy Manufacturing Investment by State

GOM energy manufacturing investments by state

$180 billion
through 2022
and $163 billion
remaining.

Approximately
$87 billion to
date, or 48% in
Louisiana

Source: Center for Energy Studies, authors’ construct from publicly reported data.

© 2022 Jones Walker LLP joneswalker.com | 15

EMISSIONS

• Share of total U.S. Energy-Related CO2 emissions:

Source U.S. Energy Information Administration

© 2022 Jones Walker LLP joneswalker.com | 16

WHY LOUISIANA IN PARTICULAR?

• Emissions
• Geology
• Louisiana Policy, including Louisiana’s “Primacy” efforts
• Louisiana Law

© 2022 Jones Walker LLP joneswalker.com | 17

LOUISIANA’S EMISSIONS

• CO2 emissions in Louisiana are primarily generated in industrial sector:

© 2022 Jones Walker LLP joneswalker.com | 18

LOUISIANA’S EMISSIONS

U.S./Louisiana CO2 emissions per sector:

© 2022 Jones Walker LLP joneswalker.com | 19

EMISSIONS SOURCES IN CLOSE PROXIMITY TO
IDEAL GEOLOGY

• Louisiana CO2 sources are centralized in prime geologic sequestration

areas:

© 2022 Jones Walker LLP joneswalker.com | 20

ABILITY TO ACQUIRE NECESSARY RIGHTS
FROM STATE

• State of Louisiana owns abundant pore space in close proximity to

emission sources, eliminating the need to deal with 100’s of
landowners.

© 2022 Jones Walker LLP joneswalker.com | 21

LOUISIANA POLICY

• Louisiana has:

• Made CO2 capture and sequestration a part of its climate initiatives

plan

• Proactively sought CO2 projects and investment

• Proactively sought “Primacy” over the Class VI CO2 Injection Well

Program from the EPA

• Staffed the LDNR applicable office with capable and professional

personnel

• Passed laws to allow it to administer the Class VI program efficiently

through the hiring of additional consultants

© 2022 Jones Walker LLP joneswalker.com | 22

LOUISIANA LAW

• Louisiana has well-established law (and regulatory framework) for

underground storage
• Surface owner has the right to store beneath the property
• Hydrocarbon storage has occurred in underground reservoirs in
Louisiana since the 1960’s

• 2008: Added CO2 to substances which could be stored in pore space in

Louisiana, including on State-owned land and waterbottoms
• Need abundant pore space for sequestration – 10’s of thousands of
acres
• Private landowners vs. State as landowner – State provides one-stop
shopping; tremendous time savings

• 2009: Enacted the Louisiana Geologic Sequestration of Carbon Dioxide

Act

© 2022 Jones Walker LLP joneswalker.com | 23

OVERVIEW OF 2009 CARBON DIOXIDE
SEQUESTRATION ACT

• Declares that CO2 utilization and sequestration:

• is in the public interest
• serves a public purpose
• is Louisiana public policy
• Gives regulatory authority over CO2 sequestration to the Office of
Conservation (subject to gaining “primacy”)
• Sets framework for expropriation or condemnation of needed rights from
private landowners
• Provides for civil liability limits for non-economic damages
• Provides for liability release in certain circumstances and transfer of
ownership of project to the State after cessation of injection

© 2022 Jones Walker LLP joneswalker.com | 24

POTENTIAL CHALLENGES TO
DEVELOPMENT

© 2022 Jones Walker LLP

POTENTIAL CHALLENGES

• Volume of Region 6 / Louisiana applications

• EPA staffing levels
• Louisiana’s “Primacy” application (pending since September 2021)

© 2022 Jones Walker LLP joneswalker.com | 26

Challenges: Volume of Applications
EPA Class VI Permit Tracker (October 2023)

EPA Region 4

Total Projects: 4
Total Wells: 15

© 2022 Jones Walker LLP joneswalker.com | 27

Challenges: Volume of Applications
EPA Class VI Permit Tracker (October 2023)

EPA Region 5

Total Projects: 11
Total Wells: 27

© 2022 Jones Walker LLP joneswalker.com | 28

Challenges: Volume of Applications
EPA Class VI Permit Tracker (October 2023)

EPA Region 7

Total Projects: 1
Total Wells: 1

© 2022 Jones Walker LLP joneswalker.com | 29

Challenges: Volume of Applications
EPA Class VI Permit Tracker (October 2023)

EPA Region 9

Total Projects 11
Total Wells: 47

© 2022 Jones Walker LLP joneswalker.com | 30

Challenges: Volume of Applications
EPA Class VI Permit Tracker (October 2023)

EPA Region 6

EPA Region 6 Louisiana

Total Projects: 30 Total Projects: 22
Total Wells: 73 Total Wells: 53
© 2022 Jones Walker LLP joneswalker.com | 31
Additional Challenges

• Lack of established CO2 pipeline network

• Regulatory permitting issues
• Lack of EJ guidance
• Expropriation issues
• Public perception/educating public

© 2022 Jones Walker LLP joneswalker.com | 32