Occidental Petroleum (NYSE:OXY)
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By Richard Rubin and Rebecca Elliott
The Internal Revenue Service provided some clarity Wednesday for companies seeking to use a tax credit for capturing and storing carbon dioxide, taking a first step toward accelerating slow-moving projects, with more detailed rules to come.
Companies such as Occidental Petroleum Corp., a Houston-based oil-and-gas company, have been urging the IRS to offer details on implementing the tax credit, which Congress expanded in 2018. Treasury Secretary Steven Mnuchin, acknowledging delays, told the Senate Finance Committee last week that he was pressing his staff to finish the regulations soon.
Energy companies and environmental groups see carbon capture as part of the world's response to climate change. The technology is designed to remove carbon dioxide, which traps heat, from exhaust, ambient air or other gas streams, thus reducing net emissions. Many oil-and-gas companies also inject carbon dioxide into the ground to help release additional oil, a process known as enhanced oil recovery.
Companies can get tax credits for every metric ton of carbon dioxide they place into secure geological storage or use for certain industrial purposes. The credit's value depends on the year and what the company does with the carbon. The expanded break was estimated to cost $689 million over a decade, according to the nonpartisan Joint Committee on Taxation.
The interim guidance defines when a project counts as having started, making it easier for companies to determine whether their facilities will be eligible for the credit, available only for projects that begin construction before 2024. But it doesn't address key items such as what kind of carbon-dioxide storage counts as secure. Future regulations will address those questions.
Barbara de Marigny, a partner at the law firm Baker Botts LLP, characterized the guidance as a necessary step, but one that is insufficient by itself.
"If somebody was on the fence about whether or not they were going to do a carbon capture project, this guidance alone I don't think is going to be sufficient," she said.
Companies qualify for the break if they complete 5% of an eligible project or begin significant physical work by the end of 2023. Under Wednesday's guidance, that work could include excavation or foundation-building at the project site or making support structures or components off-site.
Companies must make continuous progress on their projects once they start construction to get the credit later when they start capturing carbon. Recognizing the complexities of carbon-capture facilities, the new guidance says any project that starts on time and takes six years or fewer to begin operating will automatically qualify. That is up from four years on other renewable-energy projects.
"We were very concerned that for some of the larger projects especially...four years just wasn't enough," said Brad Crabtree, director of the Carbon Capture Coalition, an alliance of companies, labor unions and environmental groups. "It will give confidence to companies in industries that don't have much experience with carbon capture at scale to pursue a project."
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(END) Dow Jones Newswires
February 19, 2020 18:09 ET (23:09 GMT)
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