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SEEKING CARBON CAPTURE RULES FIX: Carbon capture developers, as well as tax attorneys, say that the IRS proposal for expanded tax credits for the technology falls short in a few key areas that could jeopardize investment if they aren’t fixed.

“This isn’t the sort of situation where you can get 80% of the rules right,” said

Amish Shah , a partner at Eversheds Sutherland who works on energy tax issues.

“This is a new industry that requires a lot of capital infusion,” Shah told Abby. “For people to do that, they need real certainty.”

The IRS proposal >released late Thursday begins to answer questions the tax agency avoided when it issued initial guidance in February on the so-called 45Q program. Those questions include how companies must demonstrate they are securely storing carbon underground, in what situations the government can reclaim the tax incentive if projects fall short of requirements, and how to account for emissions reductions from carbon stored in products.

How the IRS handles geologic storage is critical: A recent report from the Treasury Department’s inspector general found a handful of companies had inappropriately claimed nearly $900 million in credits under the prior 45Q.

Those companies hadn’t been using the required EPA program to demonstrate they were securely storing CO2 underground, according to the watchdog. That report stoked the concerns of some Democrats and environmentalists that the oil industry would abuse the carbon capture tax credits.

The IRS proposal takes steps to ensure the rigor of the 45Q program going forward, carbon capture supporters say. The IRS would allow companies to use an internationally developed standard as an alternative to the EPA program. That step was recommended by the Carbon Capture Coalition, which includes energy companies, environmental groups, and labor unions.

The tax agency also explicitly rejected suggestions from a group representing ExxonMobil, Denbury, ConocoPhillips, and others that environmentalists say sought to relax monitoring requirements.

“If the IRS had opened the door to monitoring, reporting, and verification methodologies that did not require a full mass balance accounting of the volume of CO2 stored, which is what you’re claiming the tax credit for, it would have risked greatly undermining public confidence in the tax credit,” said

Brad Crabtree , who directs the Carbon Capture Coalition.

“We’re grateful that the IRS maintained that level of rigor,” Crabtree told Abby.

Even so, Crabtree raised concerns that the IRS didn’t adopt public transparency and reporting requirements the coalition recommended accompany the international storage standard.

The IRS said in the proposal it didn’t have the authority to issue those reporting provisions. Crabtree said the coalition will be exploring whether to seek additional authority for the IRS from Congress.

One aspect of the IRS proposal may deter investors: The tax agency drafted a stricter recapture provision than many carbon capture developers had recommended — a move Shah said could expose investors to too much risk that the government could reclaim the credit.

The recapture provisions spell out the circumstances under which companies would have to pay back the tax credit if CO2 leaks.

“The concern has always been if there’s perpetual liability” the government could take back the tax credit, “there would be no investment,” he said. Shah said he is hopeful the IRS will tweak the recapture provisions in its final version, to at least allow for more exceptions for events outside of companies’ control.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers

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HOUSE SEEKS PROBE INTO MICHIGAN DAM BREACH: Democrat and Republican leaders of the Energy and Commerce Committee requested Monday that FERC along with Michigan regulators investigate the rupture last month of the Edenville dam that forced thousands to flee their homes.

FERC in 2018 revoked a license for the 96-year-old Edenville dam to generate power over fears it could not survive a flood, an action that passed jurisdiction of the dam to the state of Michigan.

The operator of the dam, Boyce Hydro, has a long history of safety and compliance problems, according to the House members.

The lawmakers are concerned that three other projects operated by Boyce within the same river system — the Sanford, Secord, and Smallwood Dams — “may present a similar threat to surrounding communities,” they wrote in a >letter to FERC Chairman

Neil Chatterjee .

“In addition to the massive property damage caused by the dam’s failure, flooding of contaminated sites and chemical facilities — including one containing a federally-regulated nuclear research reactor — in Midland, Michigan, threatened public health and the environment,” wrote the lawmakers, including committee Democratic chairman

Frank Pallone , top Republican

Greg Walden and colleagues

Fred Upton ,

Bobby Rush ,

Debbie Dingell , and

Tim Walberg .

In a separate >letter to the Michigan Department of Environment, Great Lakes and Energy, the lawmakers requested information about the actions the state has taken in overseeing the Edenville dam prior to and following FERC’s revocation of the hydro license in 2018.

EPA TO ADD GUARDRAILS TO STATES’ POWER TO VETO ENERGY PROJECTS: The agency is set to unveil later today updates to regulations that allow states the power to block infrastructure projects that threaten water quality, teeing up a battle with blue state attorneys general.

The EPA’s new rule will fulfill a directive from

President Trump . In an April 2019 executive order, Trump directed the EPA to update regulations under section 401 of the Clean Water Act, which he said were “causing confusion” and “hindering the development of energy infrastructure.” Trump had set a deadline of May 10 for the EPA to issue the new rules.

Section 401 has become a hotbed of disputes in recent years as Democratic-led states have used the provision to block construction of coal export terminals, oil and gas pipelines, and other fossil fuel infrastructure.

Just last month, New York and New Jersey denied certification under section 401 for a $1 billion pipeline to carry natural gas from Pennsylvania through New Jersey to New York City. The denial essentially killed the project in the near-term.

Read what to expect from the new rule in Abby’s >story posted earlier today.

OPEC+ NEAR EXTENSION OF OIL PRODUCTION CUTS: OPEC-led Saudi Arabia and Russia are nearing a deal to extend the current level of production cuts for a few more months to help keep a floor under oil prices, according to >reports by the Wall Street Journal, Bloomberg and Reuters.

OPEC+ reached an unprecedented agreement that started last month to cut oil production by a collective 9.7 million barrels per day, almost 10% of global supply (members >did not fully comply with that level in May, only implementing three-fourths of the cuts). The group is planning to cut that same amount during June, before the production reductions begin to taper off in July. (In addition, Saudi Arabia, Kuwait, and the United Arab Emirates pledged extra voluntary cuts for June of 1.2 million barrels per day.)

OPEC+ is weighing holding a meeting this week, a few days earlier than planned, to discuss a short extension of the current production cut level — perhaps through September — rather than easing off in coming months.

The production cuts from oil-producing nations, along with reductions by U.S. companies, have helped oil prices stablize above $30 per barrel. Demand, however, is only slowly coming back. Oil prices are still below what most OPEC members need to balance their budgets.

Related: Trump spoke with his Russian counterpart

Vladimir Putin on Monday, the Kremlin >announced, where the duo discussed OPEC+ and the world oil market, in addition to other topics.

SHALE GIANT OCCIDENTAL PETROLEUM SLASHES DIVIDEND: Occidental Petroleum, the biggest producer of oil in the Permian Basin, is cutting its dividend payment to shareholders to near zero, in its latest retrenchment to the price collapse from the coronavirus.

The Houston-based company plans to pay a quarterly dividend of 1 cent a share in July, it announced Friday.

“We’ve been encouraged by recent green shoots of recovery but know that we must continue to demonstrate low-cost leadership while ensuring the safety of our employees,” CEO

Vicki Hollub said during the company’s annual shareholder meeting, the Wall Street Journal >reported.

Burdened by a heavy debt load from its purchase last year of rival Anadarko Petroleum, Occidental Petroleum has already reported a net loss of $2.2 billion for the first quarter. It has cut its capital spending budget for 2020 by more than half, along with reducing employee and executive salaries.

Occidental Petroleum, which has 14,000 employees, has been among the loudest companies calling for policymakers to provide liquidity to the oil industry.

A CALL TO ACTION FOR FINANCIAL REGULATORS: Financial regulators need to do more to protect the economy from the threats of climate change, according to a >report Monday from the sustainability nonprofit Ceres.

The report says regulators should draw lessons from the coronavirus, which shows how vulnerable financial markets are to sudden and disruptive events.

The U.S has already sustained more than $1.8 trillion in costs from more than 265 climate-related extreme weather events since 1980, and more than $500 billion in economic losses between 2015 and 2019, Ceres projected.

What to do about it: The group recommends the Federal Reserve require stress tests to assess the risks of climate change to financial market stability and that other regulators require banks to consider climate risks through the supervision process. It also says the Securities and Exchange Commission should issue rules mandating companies disclose their risk to climate change.

What not to do: Ceres also dinged the Fed’s Main Street lending program, of one the coronavirus response programs created by Congress, for not applying conditions for managing climate risk to oil companies that have expanded access to loans after changes issued by the Trump administration.

ON THAT NOTE...GLOBAL INVESTORS AREN’T PREPARED, IMF SAYS: Equity investors didn’t incorporate extreme weather and other climate change risks in 2019 valuations, an “apparent lack of attention” that “could be a significant source of market risk looking forward,” the International Monetary Fund said in a >report Friday.

Previous climatic disasters have had a relatively modest effect on financial markets, on average a 2% drop for banking stocks and a 1% drop for the whole market, IMF found. In 10% of cases, IMF found the aggregate market effect of a disaster was greater than 14%, but the market effect doesn’t necessarily match up with overall monetary damages. For example, Hurricane Katrina caused the largest absolute damage out of the disasters the IMF studied, but it didn’t discernibly affect the U.S. stock market index.

Nations’ future financial strength hinges on investors doing more: “The current COVID-19 pandemic is a reminder that crisis preparedness and resilience are essential to manage risks from highly uncertain events that can have extreme economic and human costs,” IMF researchers wrote.

The IMF suggested the development of global mandatory climate risk disclosure standards.

STATES WILL BATTLE TRUMP FUEL ECONOMY RULES ON TWO FRONTS: Eighteen states, led by California, >filed Friday to intervene in the Competitive Enterprise Institute’s challenge to Trump’s fuel economy standards. The intervention is separate from a >lawsuit brought last week by nearly two dozen states, arguing the Trump administration’s fuel economy rule is far too weak.

The Competitive Enterprise Institute is arguing the agencies should have gone further to weaken the fuel economy targets.

“We’ll go to the mat to defend our nation's Clean Car Standards against any illegal dismantling by the Trump Administration, including this latest unfounded lawsuit by its transparent allies,” California Attorney General

Xavier Becerra said in a statement.

The Rundown

>Politico Interior watchdog: Agency official pressed EPA to hire relative

>Wall Street Journal Venezuela, in historic shift, moves to scale back fuel subsidy

>New York Times States warn that virus may doom climate projects

>Bloomberg Oil-bust refugees are being courted by clean energy in Texas

Calendar

MONDAY | JUNE 1

1 p.m. The House Natural Resources Committee holds a virtual >forum entitled, “Reclaiming Orphaned Oil and Gas Wells – Creating Jobs and Protecting the Environment by Cleaning Up and Plugging Wells.”

TUESDAY | JUNE 2

2:30 p.m. The House Natural Resources Committee holds a virtual >forum entitled, “Not So Grand Opening: Examining Local Perspectives on the Department of the Interior’s Plan to Reopen National Parks During the Coronavirus Pandemic.”

Source : https://www.washingtonexaminer.com/policy/energy/daily-on-energy-developers-seek-irs-fix-for-carbon-capture-rules

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