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EOR-Storage and the CCUS Value Chain

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EOR-Storage and the CCUS Value Chain September 21, 2020 Review of Federal, State, and Regional Tax Strategies and Opportunities for CO2- EOR-Storage and the CCUS Value Chain Review of Federal, State, and Regional Tax Strategies and Opportunities for CO2-EOR-Storage and the CCUS Value Chain REVIEW OF FEDERAL, STATE, AND REGIONAL TAX STRATEGIES AND OPPORTUNITIES FOR CO2-EOR- STORAGE AND THE CCUS VALUE CHAIN PROMOTING DOMESTIC AND INTERNATIONAL CONSENSUS ON FOSSIL ENERGY TECHNOLOGIES Prepared for: United States Department of Energy Office of Fossil Energy and United States Energy Association Sub-Agreement: USEA/DOE-002415-19-04 Authors: Peter Connors, Orrick Ken Ditzel, FTI Consulting Joshua Emmett, Orrick Fengrong Li, FTI Consulting United States Energy Association 1300 Pennsylvania Avenue, NW Suite 550, Mailbox 142 Washington, DC 20004 +1 202 312-1230 (USA) The contents of this report are the responsibility of the United States Energy Association and do not necessarily reflect the views of DOE-FE or the United States Government. Review of Federal, State, and Regional Tax Strategies and Opportunities for CO2-EOR-Storage and the CCUS Value Chain DISCLAIMER The analysis and findings expressed herein are those of the author(s) and do not necessarily reflect the views of FTI Consulting, Inc. and Orrick Herrington & Sutcliffe LLP (“Orrick”), their management, their subsidiaries, their affiliates or their other professionals. Review of Federal, State, and Regional Tax Strategies and Opportunities for CO2-EOR-Storage and the CCUS Value Chain PRINCIPAL AUTHORS Peter Connors, a tax partner in the New York office of Orrick, focuses his practice on cross-border transactions. He also has extensive experience in many areas of tax law, including corporate transactions, financial transactions and tax controversy matters. Peter serves as President of the American College of Tax Counsel and Executive Vice President of the International Fiscal Association. He has also served on the Executive Committee of the New York State Bar Association Tax Section since 2006. Ken Ditzel is a Managing Director at FTI Consulting and is based out of FTI’s McLean, Virginia office. He has 20 years of experience in energy market analysis and consulting. He began his work in CCUS in 2004, working on behalf of the National Energy Technology Laboratory on Integrated Gasification Combined Cycle market penetration scenarios. Ken’s work has covered the biofuels, coal, electricity, liquefied natural gas, manufacturing, oil and gas, petrochemical, and renewables industries. Joshua Emmett, an associate in Orrick's New York office, is a member of the Tax Group. Joshua focuses his practice on a broad range of federal income tax matters, with an emphasis on renewable energy investment and energy tax credits. He has represented sponsors and investors in tax equity financings across the renewable energy sector. Fengrong Li, CFA is a Managing Director at FTI Consulting and is based out of FTI’s McLean, Virginia office. She has spent over 20 years in the energy sector and in commodity trading, holding senior positions with global energy and trading companies. She specializes in market advisory, strategy development, utility resource planning, due diligence, financial modelling, investment analysis, and asset valuation across the energy value chain, including power, gas, and liquefied natural gas. Special thanks go to Chris Gladbach who, while a former partner in Orrick’s Energy & Infrastructure group, was instrumental in the development of our relationship with USEA. Review of Federal, State, and Regional Tax Strategies and Opportunities for CO2-EOR-Storage and the CCUS Value Chain Table of Contents Executive Summary ................................................................................................................................... 1 Introduction .............................................................................................................................................. 7 Federal Incentives, Programs, and Agencies ............................................................................................. 8 45Q Credit ............................................................................................................................................. 8 Section 43 Federal Enhanced Oil Recovery Credit ............................................................................... 10 Department of Energy ......................................................................................................................... 12 USDA Funding Under the Rural Economic Initiative ............................................................................ 14 State Incentives, Programs, and Agencies ............................................................................................... 14 California ............................................................................................................................................. 16 Illinois .................................................................................................................................................. 18 Kansas ................................................................................................................................................. 18 Kentucky ............................................................................................................................................. 19 Louisiana ............................................................................................................................................. 21 Michigan ............................................................................................................................................. 21 Mississippi ........................................................................................................................................... 21 Montana ............................................................................................................................................. 22 New Mexico ........................................................................................................................................ 22 North Dakota ...................................................................................................................................... 24 Oklahoma ............................................................................................................................................ 25 Oregon ................................................................................................................................................ 25 Pennsylvania ....................................................................................................................................... 26 Texas ................................................................................................................................................... 27 Wyoming ............................................................................................................................................. 30 Examples of Deal Structures ................................................................................................................... 30 Profiles of Sectors and Stakeholders ....................................................................................................... 31 Financial Stakeholders ........................................................................................................................ 31 Owners and Operators ........................................................................................................................ 32 Regulatory Agencies ............................................................................................................................ 35 Review of Federal, State, and Regional Tax Strategies and Opportunities for CO2-EOR-Storage and the CCUS Value Chain Non-Regulatory Government Agencies ............................................................................................... 36 Roadblocks, Hurdles, and Solutions ........................................................................................................ 36 Governmental and Regulatory ............................................................................................................ 37 Market and Financial .......................................................................................................................... 43 Technical Improvements ..................................................................................................................... 49 Public Perception ................................................................................................................................ 54 Corporate Social Responsibility and Environmental, Societal Governance ................................................ 58 What is CSR? What is ESG? ................................................................................................................. 58 How prevalent are CSR and ESG statements? ..................................................................................... 58 Environmental Responsibility and Electricity Markets ........................................................................ 59 How could a PPA apply to CCUS? ........................................................................................................ 60 Case Studies ...........................................................................................................................................
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