Direct air capture (DAC) technologies are crucial in reducing atmospheric CO2 levels to combat climate change. The United States and Canada have introduced financial incentives to support the adoption of these technologies. The U.S. Inflation Reduction Act (IRA) and Canada’s Carbon Capture, Utilization, and Storage Investment Tax Credit (CCUS ITC) are driving the carbon removal industry’s growth.
Canada’s Targeted CCUS Investment Tax Credit
Canada’s CCUS ITC, part of Bill C-59 in June 2023, offers a refundable tax credit for eligible expenditures related to carbon removal projects. The credit applies to the capture, transport, storage, or use of CO2.
Key features of Canada’s CCUS ITC:
- 60% tax credit for DAC equipment
- 37.5% tax credit for carbon transportation and storage equipment
- Additional 12% credit available in Alberta
- Applies to projects in Alberta, British Columbia, and Saskatchewan
- Eligibility period extends to 2040, with reduced rates from 2031-2040
The targeted CCUS ITC is expected to attract DAC projects to eligible provinces, spurring economic activity and job creation.
The United States’ IRA Incentives for Direct Air Capture
The U.S. Inflation Reduction Act (IRA) of 2022 represents a significant investment in reducing carbon emissions across various sectors. The IRA enhances the existing 45Q tax credit, providing increased financial incentives for CO2 capture and storage.
Key features of the U.S. IRA incentives:
- Up to $130 per tonne tax credit for CO2 captured using DAC technologies
- Extended eligibility period for credits until 2032
- $3.5 billion pledged for four regional DAC facilities in Texas and Louisiana
- Broad and flexible approach to supporting carbon removal projects
The IRA’s incentives are expected to drive a surge in new DAC initiatives over the coming decade.
Comparing U.S. and Canadian Carbon Removal Incentives
While both countries offer substantial support for DAC technologies, there are notable differences in their approaches:
- Canada’s CCUS ITC is more targeted, focusing on large-scale industrial projects in specific sectors
- The U.S. IRA has a broader and more flexible approach to supporting carbon removal projects
- Canada’s eligibility period extends to 2040, while the U.S. IRA’s eligibility extends to 2032
- The U.S. IRA’s $130 per tonne credit reduces operating costs, while Canada’s 60% capital rebate helps attract private investment
As these incentives are implemented, they will provide insights into the most effective ways to support the carbon removal industry and reduce global CO2 emissions.
Read more: Germany Invests €3.3 B in Decarbonization and Carbon Storage
