What is Carbon Sequestration?

You may have heard the terms “carbon capture,” “carbon sequestration” or “carbon credits” floating around lately and wondered what they mean. To be brief, carbon capture is the general term for the process of physically capturing and compressing carbon dioxide (CO₂) that would otherwise be released into the atmosphere – while carbon sequestration is the process of permanently storing CO₂ underground. Now you might be wondering, why are people talking about this? That is where “carbon credits” come into the picture.

What are Carbon Credits?

Congress has authorized tax credits (aka “45q credits”) relating to carbon sequestration and other carbon offsetting activities. For carbon sequestration in particular, there is a tax credit of $85 per metric ton of CO₂ that is sequestered. There are also “carbon removal credits,” not tied to tax credits, that provide a mechanism by which companies can reduce their carbon footprint by offering financing to support carbon sequestration activities. These types of removal credits are driven by demand in the open market and can fetch upwards of $100 per metric ton. When considering that certain power plants or other factories have the capability of emitting hundreds of thousands (or even millions) of tons of CO₂ per year, you can start to see how the economic benefits of carbon sequestration start to stack up.

Who Might be Affected?

Carbon sequestration is likely to touch a variety of industries, businesses, families and individuals in the near future. Most obviously, companies that own CO₂-emitting facilities (for example, power plants, cement plants, chemical manufacturers, foundries, etc.) are likely to be incentivized by carbon credits to throw their hats into the ring. Additionally, landowners will be approached by companies wanting to lease or buy underground “pore space” so that they can store their CO₂ under the landowner’s property. Owners of mineral rights may also be asked to subordinate their mineral interests to those parties developing carbon sequestration storage facilities. Lastly, companies that may not be in a position to capture carbon themselves, but still want to reduce their carbon footprint, may want to purchase carbon credits to achieve their corporate emissions goals (e.g., “carbon zero by 2030”).