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The Clean Energy Policy That Could Strengthen Texas Oil & Gas

The Clean Energy Policy That Could Strengthen Texas Oil & Gas

By Rich Powell, Executive Director, ClearPath

The reality of Democrat majorities in the U.S.  Senate and the House is sending a shiver through the Texas oil and gas industry. As the 117th Congress kicks off, energy eyes are on whether President Joe Biden will use these majorities to fulfill the campaign promise that he’ll “phase out fossil fuels.” In his first big signals, he’s revoking the permit for the Keystone XL pipeline and placing a moratorium on all oil and gas-related leasing and permitting actions on federal lands.

The concept of attacking fossil fuels should be completely thrown out the window. It’s not fossil fuels that are the problem, it’s emissions from fossil fuels that are the problem. If we can eliminate or significantly reduce the emissions, there is no reason we couldn’t continue using these resources well into the future, or forever.

We just saw the biggest and best bipartisan clean energy policy in more than a decade pass with the Energy Act of 2020 proving energy policy does not need to be renewable vs fossil. In fact, there is a clean energy policy that could strengthen Texas energy companies, while also significantly lowering carbon dioxide emissions. The policy is known as “45Q.” 45Q is a federal tax incentive that is already leading to cleaner air by increasing capture of carbon dioxide (CO2) emissions.

Since its enactment by a Republican-controlled Congress and President Trump in 2018, there has been positive commercial momentum toward projects on everything from natural gas and coal-fired power plants, cement manufacturing plants, and even a facility that will vacuum one million metric tons of CO2 out of the air in Texas’ Permian Basin. In all, there are more than two dozen carbon capture projects across the country under development – with more coming thanks to the extension passed as part of the recent COVID relief bill.

Earlier this month, the Treasury Department released its final rule around 45Q, and then-Treasury Secretary Steven Mnuchin said the regulations governing the tax credit will “further modernize the American energy sector, while ensuring American energy producers maintain their competitive edge around the world.”

Texas already deserves tremendous credit for helping the United States’ clean energy transition. Recent data from the Energy Information Administration (EIA) show U.S. power-sector carbon emissions declined nearly a third from 2005 to 2019. The main driver is that more electricity has been generated from natural gas than from other fossil fuels, and natural gas is a less carbon-intensive fuel than coal and petroleum.

From Mitchell Energy’s first horizontal wells in the 1990s to the developing liquefied natural gas export terminals in Corpus Christi and Freeport today – Texas is the clean energy nexus. It should come as no surprise that the first commercial-scale carbon capture facility is also in Texas – and has been operating since 1972.

So what exactly is this 45Q tax credit, and why is it good for Texas? 45Q incentivizes developers to mechanically capture CO2 and safely store it underground or use it in products. If a project captures more, it generates more credits, sending a strong technology-neutral market signal for “sucking up” more carbon dioxide. It turns out that putting carbon dioxide in mature reservoirs is also an effective way of producing cleaner oil. Some of the most iconic Texas-based companies, including Exxon and Oxy, are already using this tool to build a new generation of carbon capture projects.

There is a lot at stake here, and if we get 45Q right, it could play a huge role in decarbonization and clean investment in Texas and across the country. The CEOs of other Texas icons – Schlumberger, Baker Hughes, and members of the National Petroleum Council – have also recommended extending the credit ever longer.

According to analyses from the Rhodium Group, a leading research firm, a permanent extension of the credit could drive deep reductions in power plants and industrial facilities across more than 30 states. Add up the opportunities, and there’s nearly 4 gigatons of CO2 emissions reduced by 2050. That’s the equivalent of offsetting the emissions of 29 million cars for 30 years, or roughly five percent of the total emissions we’ll need to reduce over the next three decades from this single policy proposal. In Texas, that could mean capturing about a quarter of emissions from refineries and almost all from cement facilities. It could also encourage additional investments in hydrogen and natural gas infrastructure.

Nationwide, Rhodium found that about one-tenth of all U.S. industrial-sector emissions could be economical to capture under a permanent 45Q.

Carbon capture facilities that could be built would create tens of thousands of jobs each year, with about half stemming from permanent operations and maintenance positions.

This is just with modest improvements on today’s industrial capture technologies — doubtless, such a far-sighted signal to the market would lead to breakthrough new technologies which would bring down costs to the point where they’re available to even more facilities.

Texas is in a unique position to lead from both the federal and state levels. The Texas Congressional delegation has members in key committee and leadership roles to see that 45Q is an important fixture in the tax code. Governor Abbot and the Texas legislature can also apply with the U.S. Environmental Protection Agency (EPA) to obtain primacy over the Class VI program for geologic sequestration in Texas — something Wyoming and North Dakota recently did.

Carbon capture technology is primed for major developments. That means we don’t need fools errands like ending fossil fuels, banning technologies like hydraulic fracturing, or cancelling pipelines. We can continue burning clean Texas natural gas and continue America’s leadership of reducing CO2 emissions globally. It’s a win-win policy that our traditional energy companies can benefit from, and environmentalists know we need.

Rich Powell leads ClearPath, a DC-based non-profit that develops and advances conservative policies that accelerate clean energy innovation.

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