Texas Clean Carbon Incentives

Clean Coal Technology Foundation of Texas 2010 User’s Guide to Texas Clean Carbon Incentives

Texas Clean Carbon Legislation To Date 2005-2006 HB 149 (Chisum/Averitt) – State ownership of FutureGen-injected CO2 HB 2201 (Hughes/Estes) – Established Texas FutureGen incentives 2007 HB 3732 (Hardcastle/Averitt) – initial ACEP incentive package SB 1461 (Seliger/Cook) – FutureGen Bill (contracting, indemnification, AG representation,& CO2 monitoring) HB 2608 (Hughes/Eltife) – Research funding for CCT using lignite HB 2994 (Bonnen/Hegar) – Tax abatement eligibility for IGCC HB 1967 (Farabee/Averitt) - eminent domain authority for pipelines carrying gasification feedstocks and products 2009 HB 469 (King/Seliger) – expanded ACEP incentives + CEP franchise tax credit HB 1796 (Chisum/Watson) – grant program and offshore carbon repository SB 1387 (Seliger/Crownover) – regulatory framework for CCS; reports required regarding regulatory framework and several technical issues HB 4586 (Pitts/Ogden) – appropriation authorization for Governor’s office to award emerging technology funds to ACEPs

Incentives Play Key Role at Key Points in Project Development Liability/Ownership Eminent Domain for Franchise Tax Clarification pipelines Credits Grants Phases Incentives Clear Regulatory Sales Tax Severance Tax Loans Framework Exemptions Exemptions Grants Time-Certain Franchise Tax Property Tax Gross Receipts Tax Permitting Credits Abatement Exemptions FEED Permitting Financing Construction Operation HB 3732 HB 3732 HB 3732 HB 3732, 1967, & 2994 HB 3732 (2007) (2007) (2007) (2007) (2007) Bills HB 1796 HB 469 &1796 HB 469 HB 469 HB 469 (2009) (2009) (2009) (2009) (2009) HB 4586 SB 1387 HB 1796 & 4586 HB 3676 & HB 3896 (2009) (2009) (2009) (2009) Project Timeline

Outline of Incentives A. TWO CATEGORIES OF CLEAN ENERGY PROJECTS B. TAX INCENTIVES 1. Local property tax abatements 2. Sales & Gross Receipts tax exemptions 3. Severance tax exemption for EOR using manmade CO2 4. Franchise tax credits C. GRANT PROGRAM D. REGULATORY INCENTIVES & INITIATIVES

HB 3732 (2007)(Rep. Hardcastle/Sen. Averitt) HB 469 (2009)(Rep. King/Sen. Seliger) - Two Categories of Clean Carbon Incentives: “Advanced Clean Energy Projects (ACEPs)” and “Clean Energy Projects (CEPs)” “Advanced Clean Energy Projects (ACEPs)” New sites and retrofits on existing sites (+slip streams) Eligible Fuels: coal, petroleum coke, biomass, solid waste, or fuel cells using hydrogen derived from such fuels Capture & sequester 50% of the carbon dioxide emitted from the facility (or the slip stream) Eligible for all incentives except franchise tax credit

Two Categories of Clean Carbon Incentives: “ACEPs” and “CEPs” (cont.) “Clean Energy Projects (CEPs)” Eligible for franchise tax credit (Must be an ACEP to qualify for other incentives) “Construction of new facility” required Coal and petroleum coke projects only 200 Megawatt minimum capacity Must capture & geologically sequester 70% of CO2 Must be capable of supplying the carbon dioxide for an enhanced oil recovery (EOR) project

Two Categories of Clean Carbon Incentives: “ACEPs” and “CEPs” (cont.) Both categories of incentives are technology-neutral Pre- and post-combustion technologies eligible E.g., gasification, oxy-fuel, and post-combustion capture Both categories must meet the following profile: NOX—0.05 lb/MMbtu (0.034 lb/MMbtu for gasification) SOX—99% control (0.04 lb/MMbtu for sub-bituminous coal) Mercury—95% control Particulate Matter—0.015 lb/MMBtu (references filterable [“front-half] fraction)(not the condensable [“back-half”] fraction)

Periodic Review of Emissions Profile • TCEQ to Issue Report to Legislature in 2010, 2012, & 2016 regarding whether any element of the profile should be adjusted (up or down) • If TCEQ determines that a commercially demonstrated electric generating facility operating in the United States meets all the elements of the emissions profile and is capturing and sequestering a greater percentage of CO2, TCEQ is to recommend raising the CO2 capture requirement to that level. • Factors to be considered include: 1. The technical and economic feasibility of meeting all of the elements of the emissions profile in a commercially viable project and still use a diverse range of fuels, including lignite; and 2. The adequacy of the incentives to continue to attract investment in and federal funding for advanced clean energy projects in TX • Adjustments to the profile do not apply to an application considered administratively complete on or before the date the adjustment takes effect.

Local property tax abatements – Tax Code Chapter 312 HB 3896 (Rep. Rene Oliveira/Sen. Kel Seliger) Extends authority 10 years, to September 1, 2019 Would have expired this September Clarifies eligibility of property on leased land Clarifies that deferrals are available to better fit the timelines of longer, more complex projects like clean carbon facilities (similar to nuclear provisions)

Local property tax abatements – Tax Code Ch. 313 value cap agreements HB 3732 (2007) & HB 2994 (2007) ACEPs and IGCC eligible for value cap agreements HB 3676 (Rep. Joe Heflin/Sen. Kel Seliger) Extends Texas Economic Development Act until December 31, 2014 Clarifies eligibility of property on leased land HB 469 & HB 3676 Adjusts time periods for ACEPs to better fit the timelines of more complex projects like clean coal facilities

Pollution Control Property (PCP) Property Tax Exemptions TCEQ required to maintain a pre-determined equipment list (PEL) per its “Prop. 2” process that will result in automatic exemption from local property taxation for specified equipment (TCEQ decides what %) TCEQ specifically instructed to include on the PEL methods of fuel preparation, refining, and utilization previously not considered exempt Examples of the 20+ items on the list: fluidized bed combustion systems; ultra-supercritical pulverized coal boilers; syngas purification systems and gas-cleanup units; fuel cells using hydrogen derived from coal and other feedstocks; oxy-fuel combustion technology; and coal cleaning or refining facilities.

Sales tax exemption for CCS equipment Clarifies sales tax-exempt status of carbon capture, transportation & injection equipment Applies only to CO2 captured from man-made “emission” source Requires CO2 to be sequestered using “permanence” standard of severance tax exemption Implements recommendation in Governor’s Competitiveness Council / Energy Report

Gross Receipts tax exemption Sale of Electricity generated from ACEPs exempt from gross receipts tax This will effect around a 2% discount in the price of power generated by these facilities Texas utilities currently pay over $320 Million per year in gross receipts tax

Severance Tax for oil recovered using CO2 captured from a manmade source HB 3732 (2007) created a 75% tax exemption for oil recovered using man-made CO2-EOR HB 469 (2009) extends the term from 7 to 30 years for all projects Will help spur early-mover CCS projects & establish No Oil Revenue transportation infrastructure projects or Oil Revenue State Severance Tax Economy Revenue 75% 25% Manmade State CO2 Recycled CO2 Treasury Severance Tax Exemption Revenue Miscible Oil Oil CO2 Zone Bank Recovery Enhanced Oil Recovery (EOR) Stranded Oil (Needs EOR)

Franchise tax credits Up to 3 projects get $100 million franchise tax credit Credit may not exceed in any year the amount of franchise tax attributable to the CEP that year Railroad Commission certifies eligibility to comptroller Bureau of Economic Geology (BEG) verifies sequestration and must be paid fee for services Interconnection agreement with the Electric Reliability Council of Texas (ERCOT) required

Legislative objectives outline A. TWO CATEGORIES OF CLEAN ENERGY PROJECTS B. TAX INCENTIVES 1. Local property tax abatements 2. Sales tax exemption for Carbon (CO2 equipment) 3. Severance tax exemption for EOR 4. Franchise tax credits C. GRANT PROGRAM D. REGULATORY INCENTIVES & INITIATIVES

New Technology Grant Program HB 1796 (Rep. Chisum/Sen. Watson) As passed, contains “New Technology Grant Program” initially proposed in SB 16 (Sen. Averitt/Rep. Cook) Grant program funded by Texas Emission Reduction Program (TERP) Historically reserved for mobile sources “Advanced Clean Energy Projects” specifically referenced as eligible In addition to energy storage and large emission reduction projects involving at least $500 MM capital expense

Supplemental Appropriation Bill (HB 4586 – Rep. Pitts) “SECTION 79. APPROPRIATIONS FOR ADVANCED CLEAN ENERGY PROJECT. Amounts appropriated by Senate Bill 1, Acts of the 81st Legislature, Regular Session, 2009 (the General Appropriations Act), to the Trusteed Programs within the Office of the Governor for transfer to the Texas Emerging Technology Fund may be used for the two-year period beginning on the effective date of this Act for expenditures related to clean energy programs or projects, as authorized by general law.”

Legislative objectives outline A. TWO CATEGORIES OF CLEAN ENERGY PROJECTS B. TAX INCENTIVES 1. Local property tax abatements 2. Sales tax exemption for Carbon (CO2 equipment) 3. Severance tax exemption for EOR 4. Franchise tax credits C. GRANT PROGRAM D. REGULATORY INCENTIVES & INITIATIVES

TCEQ Regulatory Incentives (HB 3732) Time-Certain Permitting • Technical Review is capped at 9 months • Hearing process is capped at 9 months • 3-month extension if TCEQ finds extraordinary burden on docket from multiple applications BACT/LAER Clarifications • Emission levels achieved by ACEP are not considered “achievable” for BACT or LAER review of other projects • Technology need not be proven to be commercially demonstrated for an applicant to pass BACT/LAER

RCT/TCEQ Jurisdiction over CCS – SB 1387 (Sen. Seliger/Rep. Crownover) Railroad Commission of Texas Wells completed in reservoirs (1) initially or currently productive of oil, gas, or geothermal resources or (2) completed in reservoirs adjacent to same (conversion allowed) Can charge fees & deposit in trust fund to pay for program implementation, monitoring, inspection & enforcement TCEQ Executive Director sign-off required Texas Commission on Environmental Quality Water Code reverts jurisdiction of all other injection wells back to TCEQ (e.g., storage projects in brine/nonproductive reservoirs)

Ownership Clarification - SB 1387 Anthropogenic carbon dioxide stored in a geologic storage facility is considered to be the property of the storage operator Alternative ownership can be designated by a contract, bill of sale, deed, mortgage, deed of trust, or other legally binding document Absent a final judgment of willful abandonment anthropogenic carbon dioxide stored in a geologic storage facility is not considered owned by the surface or mineral estate owner. Key unresolved issues remain (pore space ownership, liability protection, unitization, and regulatory jurisdiction)

SB 1387 Study Provisions Joint study by RCT and TCEQ required so 82nd Legislature can determine long-term division of labor on carbon storage projects. Study by GLO todevelop recommendations for managing geologic storage of CO2 on state-owned lands, including an assessment of storage capacity and new legal and regulatory frameworks that could be necessary Joint study by GLO and BEG regarding the proper regulation of geologic storage in saline formations not productive of oil, gas or other geothermal resources

Off-Shore Carbon Repository – HB 1796 (Rep. Warren Chisum/Sen. Kirk Watson) Map locating CO2 storage capacity in brine reservoirs beneath State-owned submerged lands Courtesy BEG

Off-Shore Carbon Repository – HB 1796 (Rep. Warren Chisum/Sen. Kirk Watson) Sets in motion an offshore carbon repository program to be managed by the General Land Office (GLO) BEG to work with GLO to fully characterize the resource and establish protocols for injection Once established, GLO allowed to charge fees for injection (can be % of carbon sequestration credits) State ownership addresses pore space ownership and liability concerns that exist for other CCS projects Will improve chances of major investment in CO2 capture facilities and pipelines throughout Texas that can be tapped for enhanced oil recovery.

Texas Commission on Environmental Quality Procedures for issuing letters in conjunction with Class Rule Published: April 16, 2010 IIB well applications (SB 1387): Public Comment Until: May 17, 2010 Development of rules by which Executive Director may submit Public Hearing: May 12, 2010 letters to the RCT certifying that the proposed Class IIB well will To Be Adopted: August 25, 2010 not injure any freshwater strata and that the well will not be injecting CO2 into any freshwater sands. Amendment to Memorandum of Understanding Rule Published: April 16, 2010 Between TCEQ & RCT (SB 1387): Public Comment Until: May 17, 2010 Amendment of memorandum of understanding recorded at Public Hearing: None 16 TAC § 3.30, relating to the division of jurisdiction between To Be Adopted: September 2010 the two agencies over waste materials related to the exploration, development, production, and refining of oil and gas. Revisions to Pollution Control Property Tax Abatement Advisory group Installed ( 4 meetings to date) Program (HB 3206 / HB 3544): Public Comment: July 2, 2010 to August 2, 2010 Installation of a permanent advisory committee to provide Public Hearing: July 27, 2010 input into the PCP program. Final Rule: December 1, 2010 30

Texas Commission on Environmental Quality cont… Joint preliminary report (SB 1387): Inter-agency coordination ongoing The TCEQ and RCT, in consultation with the BEG, must file a report to the legislature recommending, among other things, a Deadline: Dec. 1, 2010 permitting process for and a division of jurisdiction over CO2 injection wells into saline formations that are not productive of oil, gas, or geothermal resources. New Technology Implementation Grant program (HB Stakeholder group meetings: February 24, 2010 and 1796): March 29, 2010 TCEQ must establish and administer the new technology implementation grant program under Texas Health & Safety No statutory deadline but implementation language Code ch. 391. This involves rulemakings for application review implies expedited schedule because emergency rule and funding procedures. granted by statute. Reporting requirement on “clean energy project” In process emissions profile (HB 469): TCEQ must submit a recommendation to the legislature on Reports due: whether emissions profiles should be adjusted to increase or September 1, 2010, September 1, 2012, 31 decrease elements of the profile. September 1, 2016

Texas Commission on Environmental Quality cont… New technology research and development program Pending (HB 1796): TCEQ must make revisions to the new technology research and development program under Texas Health & Safety Code ch. 387. TCEQ may contract with one or more nonprofit organizations or institutions to administer this program. Offshore carbon repository rules (HB 1796): Not yet docketed TCEQ may by rule adopt standards for the (1) location; (2) construction; (3) maintenance; (4) monitoring; and (5) operation, of the offshore carbon repository. These rules must be consistent with any regulations promulgated by EPA. Measurement, monitoring, & verification standards (HB Not yet docketed 1796): TCEQ may by rule establish measurement, monitoring, and verification (MMV) standards for the Offshore Carbon 32 Repository.

Railroad Commission of Texas Regulations for injection of anthropogenic carbon Published: March 26, 2010 dioxide (SB 1387): Public Comment Ended: April 26, 2010 RCT is required to adopt rules to regulate the injection and storage of “anthropogenic” carbon dioxide or the operation of Anticipated Completion Date: June/July, 2010 a carbon dioxide storage facility. These rules do not cover Class II wells; these rules will cover Class IIB wells. Amendment to Memorandum of Understanding Published: April 9, 2010 Between TCEQ & RCT (SB 1387): Public Comment Until: May 17, 2010 Amendment of memorandum of understanding recorded at 16 Public Hearing: May 11, 2010 TAC § 3.30, relating to the division of jurisdiction between the two agencies over waste materials related to the exploration, development, production, and refining of oil and gas. Joint preliminary report (SB 1387): Inter-agency coordination ongoing The TCEQ and RCT, in consultation with the BEG, must file a report to the legislature recommending, among other things, a Deadline: Dec. 1, 2010 permitting process for and a division of jurisdiction over CO2 injection wells into saline formations that are not productive of 33 oil, gas, or geothermal resources.

Texas Comptroller of Public Accounts Revision to Texas Tax Code Chapter 313 (HB 469): Published: March 19, 2010 Comptroller must implement changes and revise the expiration date of Texas Public Comment Until: April 18, 2010 Tax Code Chapter 313. Comptroller is planning to finalize the rule by June 15, 2010 Extension of severance tax exemption for oil recovered using Rule language under development EOR (HB 469): Comptroller and RCT certification program for EOR wells must be amended to reflect the extension of the severance tax exemption for oil recovered using EOR. Establishment of program for certifying “clean energy projects” Not yet docketed (HB 469): Comptroller is charged with developing a program for issuing franchise tax Deadline: Dec. 31, 2010 credits to entities that operate clean energy projects. Develop sales tax exemption for components of personal Rule language under development property used to capture, transport, & store man-made CO2 (HB 469): Comptroller must change its rules and regulations to reflect this statutory change. 34

Texas General Land Office GLO report (SB 1387): Ongoing (may be joined with RCT/TCEQ report) GLO is charged with developing a report on a Deadline: Dec. 1, 2010. recommended framework for managing activities related to geologic storage on state-owned land. Development of site of Texas offshore carbon Not yet initiated repository (HB 1796): The BEG, by contract with the Land Commissioner, shall conduct a study of state-owned offshore submerged lands to determine where the Texas Offshore Carbon Repository should be situated. Fees for acceptance of carbon dioxide into the Not yet docketed Offshore Carbon Repository (HB 1796): The School Land Board is given the authority to establish fees for acceptance of CO2 into the Offshore Carbon Repository. 35

Other Key State Carbon Capture & Storage Legislation State Bill No. Summary / Status Kansas HB 2419 Substantive regulations and performance standards for CO2 injection. (2007) Louisiana HB 1117 & 1220 Suite of incentives for CCS; State Mineral Board regulates; Operator owns CO2 and liable during (2008) operation; State assumes liability 10 years after CO2 injection is completed; Condemnation authority provided for geologic sequestration (similar to natural gas storage program). HB 661 & SB 1906 (2009) Montana SB 498 Board of O&G Cons. Regulates with input from DEQ; Provides regulatory framework and (2009) performance standards; Designates the surface owner as the owner of the pore space; Operator owns CO2 and liable during operation; State assumes liability after 30 years. North Dakota SB 2095 & 2139 Surface owner owns the pore space; Substantive regulations for injection of CO2 into geologic (2009) formations; Operator owns CO2 and liable during operation; State assumes liability 10 years after CO2 injection is completed; Concept similar to forced unitization is provided for aggregating storage areas . Oklahoma SB 492 Regulatory framework for CO-2 injection and CCS; CCN process created with right of condemnation; (2009) Financial assurance addressed. Wyoming SB1, HB 89-90 Pore space owned by surface owner and may be severed; Operator owns CO2 and liable during (2008) operation (but not after); WDEQ regulates; Provides new legal procedure for the unitization of geologic sequestration facilities; mining/drilling rights given priority; Permitting and performance HB 57, 58 & 80 standards, fee program, state's immunity confirmed, requires bonding or other financial assurances, (2009) provides penalties, provides for the release of financial assurances, and requires land owner notice of geological sequestration sites. HB 17 (2010)

DOE DOE and Summit Energy Dept. of Energy and UT-Dallas Analysis of CO2 sorption at pore Texas Clean Energy Project Development of a commercial Membranes for CO2 and Hydrogen Gas scales in coal seams $300,000 scale coal gasification plant with carbon capture for EOR Separation $225,000 $350 million DOE and UTEP DOE DOE and Gasification Engineering Corp Super-High Temperature Alloy Industrial CO2 sequestration and Testing $386,500 Evaluation of a cyclone and hot gas filter system EOR recovery training $298,000 Total investment $900,000 NETL/Southwest Regional Partnership DOE on Carbon Sequestration $563MM in Clean Carbon Training for advanced 3D seismic methods for monitoring verification and accounting of SACROC-EOR Sequestration Test $5.5 million Grants Comes to Texas CO2 storage $299,300 DOE and Pegasus Technologies •Richardson DOE, CEMEX USA and RTI Mercury Specie and Multi-pollutant Control $15.56m •Port Dry sorbent CO2 capture technology •Snyder Arthur at a cement plant $1.137 million •El Paso •The DOE; WA Parish Plant •Odessa •Jewett DOE and UT Austin Woodlands •College 60 MW carbon capture demonstration Determining which saline aquifers are facility $154 million suitable for CO2 sequestration, $5.35 million Station •Houston Monitoring, verification and accounting •Austin DOE and URS Group Of CO2 storage $2.5 million •San Antonio •Sweeny Solid sorbents experiments for optimum DOE DOE & Texas A&M CO2 capture, $2.684 million Industrial carbon capture and Adsorbents for treatment of ash and scrubber Dept of Energy & URS Group sequestration project $3.014m bonds, total investment $200,000 Evaluation of MerCAP for power plants, $1.73 million DOE & Southwest Research Organization Demonstrate membranes for hydrogen production $1.64 million DOE Full scale testing of mercury oxidation catalysts, $4.08 million DOE & Southwest Research Institute Novel concepts for compressing CO2 $218,000 DOE DOE & Denbury Onshore Testing of mercury oxidation catalysts/phase II, $1.93 million Industrial carbon capture and sequestration project $961,500 DOE DOE DOE Risk assessment of CO2 Monitoring, verification and accounting of CO2 37 Gulf of Mexico Miocene CO2 site characterization storage, $2.63 million Site characterization mega transect, $5.99 million mega transect, $5.99 million

Texas Clean Carbon Incentives

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Texas Clean Carbon Incentives — Presentation Transcript