Carbon capture and storage: The legal and regulatory context

In addition to regulating how CO2 is stored and transported, governments increasingly provide incentives to accelerate adoption of carbon capture and storage

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Foreword

This report looks at where we are in the journey toward implementing carbon capture and storage (CCS) technologies, with a focus on how laws and regulations in the US and Australia affect CCS adoption. We see two main ways that authorities will shape the CCS landscape, often acting as catalysts to speed implementation.

  • Incentives: Governments may establish mechanisms to encourage adoption of CCS strategies. At the federal level in the US, this is currently done through a tax credit—detailed in Section 45Q of the Internal Revenue Code of 1986, as amended—that specifically targets CCS. In a recently enacted bill, these tax incentives were further extended to potentially allow projects that begin construction before 2026 to be eligible for tax credits. President Biden's climate plan would further enhance the 45Q tax credit and provide other financial incentives for CCS. It would also increase R&D funding for CCS technologies and provide federal financing for carbon dioxide transport infrastructure. In addition, several US states offer state tax incentives for carbon capture projects.
  • Protections: Governments will ensure compliance with environmental and other protections as companies pursue CCS. These include protections for habitat and species, drinking water, historic and cultural sites, and other areas. The US currently has no CCS-specific environmental laws— but Australia does, especially at the state level. Companies will have to navigate a complex network of state and federal protections in both of these countries, and understanding the often complex regulatory context is critical for companies pursuing CCS.

Our objective is to help companies understand the CCS landscape so they can pursue the best possible course to meet climate change mitigation goals and finance and properly structure CCS projects. To that end, this report has a section on US incentives for CCS, which zooms in on the 45Q tax credit, and a section on federal environmental and other protections in the US. The report has a section on Australian regulations affecting CCS, which covers CCS-specific rules and relevant environmental and other protections in the country. And it includes a brief section on the outlook for CCS M&A, which we believe will accelerate in coming years.

a tall tree
a tall tree

US tax credit encourages investment in carbon capture and storage

Our overview of the Section 45Q tax credit helps investors understand how they may receive incentives to capture, store and use carbon dioxide and carbon oxide

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Petra Nova Carbon Capture Project in Thompsons, Texas
Petra Nova Carbon Capture Project in Thompsons, Texas

How US environmental laws and regulations affect carbon capture and storage

Although there are no CCS-specific federal environmental laws or regulations, the federal government has significant influence on how CCS is implemented in the US

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bubbles

Carbon capture and storage M&A is likely to accelerate in the US

Despite short-term headwinds, long-term trends are likely to drive increased investment in carbon capture and storage

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How Australian laws and regulations affect carbon capture and storage

CCS projects are regulated by the Commonwealth, states and territories under CCS legislation and more general environmental laws and requirements

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