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  • Writer's pictureSirous Thampi

Monetizing CO2: New Opportunities and Challenges in a Changing Market


This blog post summarizes key takeaways from a recent webinar on "Monetizing Tail Gas CO2 from Digester Biogas RNG Projects," hosted by Paul Greene of GreeneTec. The webinar featured presentations from industry experts Todd Taylor (Avisen), Sam Rushing (Advanced Cryogenics), and Jafeth Bulsink (Bright Renewables).


The Inflation Reduction Act (IRA) has brought about significant changes in the rules governing renewable natural gas (RNG) facilities and the associated carbon capture and sequestration (CCS) tax credits. One of the key provisions is that industrial facilities, which include RNG facilities, must capture at least 12,500 metric tons of CO2 in a taxable year to qualify for the Section 45Q tax credits. For those eligible RNG facilities, the IRA offers a lucrative incentive of $85 per ton of CO2 captured and sequestered or utilized.

 

The IRA introduces the concept of Direct Pay, which allows eligible entities to receive direct payments from the federal government for the first five years of the credit period. This feature has garnered significant interest from banks and financial institutions, as it enhances the creditworthiness of RNG projects. After the initial five-year period, the credit is paid out over the remaining seven years of the 12-year credit period. It's worth noting that if an entity opts for Direct Pay, it cannot transfer the credits.

 

A common financial arrangement in the RNG industry is the partnership flip structure, which allows tax equity investors to participate in the project's tax benefits while the developer retains operational control.

 

While the IRA presents exciting opportunities, there are complexities to navigate. For instance, tax-exempt bond financing for RNG projects can result in a 15% reduction in the Section 45Q credits. Additionally, it's crucial to understand the interplay between different credits. An entity cannot claim both the Section 45Q (for CO2 capture and sequestration) and the Section 45V (for clean hydrogen production) credits simultaneously. The general principle is that the credit should be treated as if it is attached to the specific molecule being produced.

 

Currently, there are approximately 111 CO2 suppliers in the United States, nearly all producing beverage-grade quality CO2 that meets the International Society of Beverage Technologists (ISBT) standards. However, beverage producers are hesitant to accept CO2 from biogas producers due to concerns over potential contaminants, despite the CO2 meeting chemical constituent standards. The beverage industry constitutes around 20% of the CO2 market.


According to economic analyses, the cost of producing and transporting CO2 ranges from $65 to $85 per ton while selling prices can vary significantly, from $70-$100 per ton for large food processors to several hundred dollars for smaller processors. The merchant sector is currently paying $10-$20 per ton for CO2 from ethanol producers, while the Section 45Q tax credit offers $85 per ton, making CO2 sequestration a more attractive proposition.

  

Looking ahead, the utilization of CO2 extends beyond existing markets like beverages, food, and industrial applications. Emerging markets include sustainable aviation fuel (SAF), e-methanol, e-methane, and concrete manufacturing. Navigating the complexities of tax credits, financial structures, and emerging markets will be crucial for success in this rapidly changing landscape.

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