The IIJA is a Big Deal for Carbon Management

Figure 1: Breakdown of the $18.9 billion spent on carbon management in the IIJA. Selected major nature-based carbon management solutions are included but are hard to directly compare to other forms of carbon management because they include multiple program and activities and provide both carbon and non-carbon benefits.

Engineered capture and removal of carbon dioxide make up the largest share of the IIJA’s spending for carbon management – representing 58% of the spending in Figure 1. More than half of this funding is focused on the deployment of DAC, a critical technology that needs to be demonstrated at the commercial scale in the coming decade to drive down costs and create a track record of results that can lower risks and spur future investments.

The IIJA directly funds engineered capture and DAC in two ways. First, the bill appropriates full five-year funding for several authorizations included in last year’s Energy Act of 2020, including a DAC technology prize and a new carbon capture technology program, tasked with developing transformational technologies that will improve efficiencies and costs for technologies in both the commercial and pre-commercial stages of deployment. Second, the bill supports the creation of four regional DAC hubs which co-locate DAC technologies with existing or planned carbon management infrastructure used to transport, store, and use the CO₂ that has been captured to increase innovation and further drive down costs through economies of scale.

In addition to these two pieces of direct funding, the IIJA also includes a provision that expands the eligibility of CCUS and DAC projects to receive private activity bonds. These are bonds issued by local or state governments that have tax-exempt status with favorable pay-back periods which can help lower the overall financing costs of carbon capture projects.

While carbon capture technologies have been in operation for 50 years, the technology is insufficiently deployed in the type of applications that can make a dent in mitigating emissions. The funding for large scale pilots and demos included in the IIJA comes at a unique time where there is an uptick in private sector interest in carbon capture, with over 40 new project announcements in the first half of 2021 alone. This combination of private and public sector investment, coupled with needed reforms to the tax code, creates an environment conducive to commercial deployment, similar to the conditions that helped solar and wind technologies take off and reach commercial deployment 10 years ago. It is worth noting that investments in carbon capture can help support the broader ecosystem of carbon management infrastructure required to bring down costs for technological CDR solutions like direct air capture. Early investments set the stage for future deployment opportunities.

It is hard to overstate the significance of funding for demonstration projects within the IIJA. Carbon capture and direct air capture technologies have been demonstrated in a controlled laboratory setting but still need policy help to meet commercial scale adoption. Overall, more than $7 billion are spent on capture and removal demos in the next five years.

Carbon transport, storage, and use are the steps required after capture and removal: the CO₂ molecules have been collected but must now be moved and stored. Unless a project is also co-located with an appropriate geological storage site and can draw on sufficient revenues to finance the infrastructure required for storage or use, the most economical way to move CO₂ is through carbon pipelines that pressurize the CO₂ and move it as a supercritical fluid. Approximately 5,000 miles of CO₂ pipelines exist in the U.S. today, primarily in the Permian Basin region, with some projections suggesting that close to 29,000 miles of carbon pipelines will be needed in the coming decades. It is worth noting that an attractive feature of DAC projects is that they can be sited to optimize storage resources.

A problem with carbon transport today is that both the capture and the storage (or use) must be established before financing for wide-scale transport infrastructure can be acquired. But capture projects are hard to secure funding for with access to reliable transport— a classic chicken-and-egg problem. Unless a company can cover the up-front costs of a capture, transport, and storage project within a relatively short time frame (a possibility with some enhanced oil recovery projects), there is a penalty for early adopters that are creating the carbon management infrastructure that others will use in the future.

Enter: the Carbon Dioxide Infrastructure Finance and Innovation Act (CIFIA) program, included as a central pillar of the bipartisan SCALE Act, introduced earlier this year and incorporated into the Infrastructure Investment and Jobs Act. CIFIA is modeled after the bipartisan Transportation Infrastructure Finance and Innovation Act (TIFIA) programs that finances highway infrastructure every year, but with a focus on providing low interest loans for carbon dioxide transport projects. The SCALE Act also included grants for Front-End Engineering Design (FEED) studies for CO₂ transport infrastructure, a challenging aspect to finance given the uncertainties associated with deploying carbon management infrastructure. The Infrastructure Investment and Jobs Act funds these two components of CO₂ transport at $2.2 billion over the next five years.

Also included in the bill is a renewed emphasis on underground storage and utilization – because we need to do something with the CO₂ once we capture it. The bill expands and directly funds the DOE’s carbon storage and validation testing program, which leverages existing Regional Carbon Sequestration Partnerships and expands resources to demonstrate and deploy safe underground storage of CO₂. Additional resources in the Infrastructure Investment and Jobs Act include grants that support the permitting of underground storage sites and procurement of products derived from captured CO₂. New authority is also given to the Department of the Interior to permit underground storage on the Outer Continental Shelf, so that we can leverage potential offshore underground storage as other countries have done. In total, the Infrastructure Investment and Jobs Act provides $2.88 billion for this renewed focus on underground storage and use of CO₂.

Beyond the important provisions for engineered carbon management described above, critical legislation and funding for nature-based carbon management solutions were also incorporated into the IIJA (Table 1). These significant, if less obvious provisions include the bipartisan REPLANT Act. This bill reduces the backlog of 1.3 million acres of forests requiring reforestation by removing a $30 million cap placed on the Reforestation Trust Fund. It further gives priority to forests degraded by wildfires and other natural disasters, and its authors note that removing this cap will result in an average of $123 million going to reforestation each year. By providing dedicated and permanent funding, the bill helps the U.S. Forest Service keep pace with urgent reforestation needs and is a key step toward enhancing existing natural carbon removal solutions.

The continued devastation by wildfires throughout the American West underscores the importance of USDA and Department of Interior fire prevention and mitigation programs. Reducing the risk of large, widespread, catastrophic wildfires helps protect existing biomass and support healthy forests that sequester and store carbon. In response to this need, the IIJA provides $6.5 billion for natural resources-related infrastructure, wildfire management, and ecosystem restoration aspects of carbon management. This support is directed toward urgently needed wildfire risk reduction efforts underway within USDA and DOI that include restoration treatments at the wildland-urban interface, salaries and expenses of Federal wildland firefighters, as well as enhanced coordination and fire response preplanning. A new program established in coordination with NOAA will further leverage data from the Geostationary Operational Environmental Satellite (GOES) Program to accelerate fire detection and reporting. Of this $6.5 billion, $514 million is provided for the U.S. Forest Service to carry out hazardous fuels reduction projects and $178 million for DOI to conduct hazardous fuels management. Collectively, funding for these preemptive efforts is vital for preventing and mitigating wildland fires and protecting essential firefighters.

Following significant disturbances like wildfires, forest restoration efforts are needed to help the ecosystem regenerate and prevent soil erosion, landslides, and further landscape degradation. The IIJA provides $225 million of the $6.5 billion for burned area rehabilitation. Bolstering wood markets is another important strategy for supporting the natural-based carbon management solutions. Robust markets for wood products generate an economic incentive for landowners to maintain and manage forests instead of selling land for development and conversion—a significant threat to existing domestic forest carbon stores. Local forest management is also enhanced by promoting the conversion of leftover material from nearby sawmills or forestry operations into renewable wood energy. To meet these needs, the IIJA invests $60 million of the total allocated across USDA and DOI for USFS Community Wood Energy and Wood Innovation grant programs which enhance energy resilience while boosting forest health.

Table 1. Appropriations for significant provisions in the IIJA related to nature-based carbon management solutions. This table includes funding for programs and activities that directly support active terrestrial carbon management and storage in biomass and soils. This table doesn’t include provisions for ecosystem restoration, which may have indirect carbon benefits.

Carbon removal and enabling carbon management infrastructure are critical to meeting our climate goals. The Bipartisan Policy Center is committed to working with stakeholders to support strong investments in the entire carbon management ecosystem to achieve a net zero future