The Role of Carbon Capture and Storage Incentives in Ammonia Fuel Production

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Abstract

While the current cost of ammonia produced from hydrogen via steam methane reforming (SMR) of natural gas with carbon capture & storage (CCS) is challenging on an energy basis compared to the price of gasoline, the Clean Air Task Force projects that production of ammonia at optimized, world-scale SMR+CCS facilities could be price-competitive with gasoline in the near future, especially in the right policy environment. Two government programs in the United States—a federal tax incentive known as 45Q and California’s Low Carbon Fuel Standard (LCFS)—provide immediate and unprecedented opportunities to mitigate the cost premium associated with certain hydrogen production systems. Because hydrogen is used to make ammonia, policies that offset the costs of producing hydrogen can reduce the cost of producing ammonia.

US-based hydrogen producers that capture CO2 from the SMR process can earn a federal tax credit. If the captured CO2 is stored via enhanced oil recovery, the tax credits are worth $35 per metric ton sequestered; if the CO2 is stored in saline aquifers, the tax credits are worth $50 per metric ton. A hydrogen producer can also generate credits under the California LCFS, which has compliance pathways for processes that utilize CCS or electrolysis to reduce the carbon intensity of hydrogen. Carbon credits in the LCFS credit market trade for around $150 – $180 per metric ton of CO2. If a producer uses CCS to reduce the carbon intensity of hydrogen sold as transportation fuel in California, the combined value of the available LCFS carbon credits and federal tax credits amounts to a financial incentive in the range of $180 – $230 per metric ton.

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