It’s here, so we might as well take advantage of it. On Aug. 16, President Biden signed the Inflation Reduction Act into law. The IRA provides tax incentives and grants for solar, wind, hydrogen, nuclear, oil and gas, and carbon capture, utilization and sequestration projects. Considering Oklahoma’s vast energy resources, infrastructure and capable workforce, there are considerable opportunities for Oklahoma to prosper from the IRA.
The IRA amends section 45Q of the tax code to provide credits for the construction of carbon capture and utilization facilities. Any facility that begins construction prior to Jan. 1, 2033, will qualify for the 45Q credit. It increases the credit for carbon capture by industrial facilities and power plants to $85 per metric ton for carbon dioxide stored in deep geologic formations, $60 per ton for the beneficial utilization of captured carbon emissions, and $60 per ton for CO2 stored in oil and gas fields. Furthermore, for qualified direct air capture facilities, the credit increases to $130 per ton for enhanced oil recovery and $180 for geologic sequestration.
The IRA also adds section 45V to the tax code to provide credits for production of qualified hydrogen produced at a qualified hydrogen production facility during a 10-year period beginning the date the facility commences operations. The base tax credit is set at 60 cents per kilogram of hydrogen and increases to $3 per kilogram when the hydrogen’s life cycle carbon intensity meets certain threshold requirements.
Making these credits even more attractive, the IRA provides a direct pay option for the same amounts instead of a tax credit. Furthermore, the IRA includes an option for taxpayers to monetize the credits by transferring them to other taxpayers. The IRA’s pricing of carbon and hydrogen will undoubtedly drive innovative hydrogen and enhanced oil recovery projects in Oklahoma and elsewhere.
There’s more! The IRA includes extensions of tax credits for wind and solar, grants to assist in measuring and monitoring methane emissions in oil and gas operations, grants to plug orphaned oil and gas wells, and tax credits for electric heat pump replacement in buildings and electric vehicles. Never fear, this is no death knell to conventional oil and gas, but an invitation to lean into the IRA’s incentives to develop projects that exploit Oklahoma’s oil and gas resources and truly promote an “all of the above” energy policy.
* This article first appeared in The Journal Record on September 14, 2022, and is reproduced with permission from the publisher.