There are three things that can fix the cash flow problem in the carbon capture and storage (CCS) industry, says Jeff Brown, managing director of the Energy Futures Financing Forum: Direct pay incentives, project developers with a clear vision and giving developers just one job to do.

Prices and demand are too low to generate the cash flows necessary for long-term financing of capturing CO₂, either from the air or at a point source like a cement factory.

Current tax incentives to bridge those gaps are not helping the CCS industry, Brown said Thursday at the Global CCS Institute’s 10th Annual D.C. Forum.

“Tax credits don’t incentivize because basically no corporations pay taxes … and if they do, they have excess tax credits,” he said. “Nobody can use tax credits, except for a very limited volume on Wall Street.”

Furthermore, tax credits are not cash, so they cannot be used to pay off debt. To resolve those issues, Brown said, tax credits need a direct-pay function. Direct pay would allocate tax credits as tax overpayments that can be drawn as cash from the Treasury. The Build Back Better Act included a direct-pay measure, and CCS advocacy organizations are continuing to lobby for its inclusion in smaller legislative packages now under discussion.

In Brown’s view, federal and state governments also have a role to play in simplifying the work that developers must do to make a CCS project successful.

“You need government-owned … or government-supported … pipelines and sequestration, so the developer only has one job — to figure out how to capture the carbon,” Brown said. A government-owned infrastructure approach would minimize timing challenges associated with siting capture facilities, the pipeline for transportation to a sequestration location, and the sequestration location itself.

Developers also need a vision for how to deploy capture infrastructure at scale under current incentive structures, he said.

“People don’t do the first-of-a-kind project unless they can see a trajectory to building enough of them to get their cost-of-capture down,” he said. If there is no “policy-supported trajectory,” the price per ton of CO₂ is not going to be high enough to support the project financials.

If the incentives that are in place do not support that level of growth, Brown said “something has to give.”

“Either you have to have policy support for hundreds of projects, or you need to raise the level of the policy incentive so that, within a reasonable number of new units, you can get to the right price,” he said.

Market Vision

Reaching a normal rate of return on a CCS project is the “hardest part” for developers in the nascent CCS market, Michael Brownlie, division director at Macquarie Bank, said during the forum session on finance. The point-source CCS “market” is currently just a set of deals in which a CO₂ emitter, a capturer and a sequesterer are integrated through a contract. That could change, he said.

“There is a possibility that we can get a market disaggregation of these things, and you just put CO₂ in a pipeline and the lowest bidder for that CO₂ [one willing to charge the emitter the least] picks it up and away it goes,” he said. “That’s the dream, but we’re a long way from getting anywhere near that.”

In a perfect market scenario, CCS would have a “durable policy instrument” that creates a revenue source for CO₂, said Jay Dessy, director of Breakthrough Energy Catalyst. That instrument could be a carbon tax or tax credits that are enhanced through deadline extensions, direct-pay guidelines or qualifying technologies.

“I think you’ll see CCS applications that get focused on certain sectors, where it makes most cost-effective sense, whether that’s cement or other carbon-intensive businesses,” Dessy said.

Khalid Abedin, managing investment officer at the U.S. Department of Energy’s Loan Programs Office, says he sees the future of CCS as “a commodity similar to natural gas markets.”

In that future, CO₂ would be available at different regional hubs, each with their own price point, where buyers and sellers can transact.

“People who are buying the CO₂ might be using it for industrial purposes … and the seller, through a pipeline that they’re going to build, is going to take the CO₂ to the delivery point,” he said. With a clear trading price, he added, market participants could easily forecast what the cash flow would be for a CCS project.

“That’s what I want the future to look like in maybe five or 10 years,” he said.