We want to focus today on the headlines around the possible increase in the 45Q CCS credit in the US and discuss the false logic of those that are objecting to it. There is no scenario where the US can move to a lower emissions power and transport profile while avoiding runaway inflation and social disorder without the continued use of fossil fuel-based power and transportation fuels for decades. The reliance on these fuels should and will decline over the years, but it is unreasonable to expect a transition that causes it to stop overnight. In the meantime, CCS is a mechanism that would allow fossil fuels to play a part with a much lower emissions footprint, and given that the CO2 impact on global warming is cumulative, if we can capture and store several billion tons of CO2 underground over that transition period it should be a good thing. Members of the Sierra Club and others would do well to look at the energy inflation problems in Europe and the move this week to put natural gas and nuclear back in the energy transition mix (too late in our view) because the move to renewables cannot keep pace with demand, which will grow faster as more EVs hit the road. The proposed 45Q credit is shown in the chart below vs. the current credit, the LCFS credit, and estimates of CCS costs.
Otherwise, we cover most of the other relevant developments from COP26 so far in our ESG and Climate report published today. There seems to be consensus on curbing methane emissions, as we discussed yesterday, although the goals could be more ambitious and may need to be in the US if LNG exporters are to exploit what looks like it might be rising demand in the EU. The challenge for the rest of the conference will likely be carbon pricing – something Mr. Carney is very focused on to support his private funding initiative – see linked headline. With the Democrats losing ground in the US yesterday, we are likely to see carbon pricing emerge in some sort of voluntary plan driven by industry rather than the government.