UW Economist Co-Writes Paper Urging Better Carbon Capture Incentives

A University of Wyoming College of Business professor is part of a research team calling for a redesign of U.S. policies that support carbon capture and storage (CCS) -- an effort they say is crucial for cutting greenhouse gas emissions.

Charles “Chuck” Mason, UW’s H.A. “Dave” True Jr. Chair in Petroleum and Natural Gas Economics and a professor of economics, is the co-author of an article published July 16 in Proceedings of the National Academy of Sciences (PNAS), one of the world’s most prestigious scientific journals. The study, titled “How to design better incentives for carbon capture and storage in the United States,” argues that the current federal tax credit meant to encourage CCS adoption may fall short of its climate goals and even create unintended problems.

“This research highlights the University of Wyoming’s impact on critical national issues,” UW President Ed Seidel says. “It’s a reflection of our commitment to research that informs policy debates and positions UW as a leading voice on energy and economic issues."

The research focuses on the federal Section 45Q tax credit, a policy that offers major subsidies for capturing and sequestering carbon dioxide from power plants and industrial facilities. Thanks to recent increases under 2022’s Inflation Reduction Act, the 45Q credit now provides up to $85 per ton of CO₂ captured. Mason and his colleagues found that, while this generous incentive is spurring interest in CCS projects, its structure could lead to higher overall CO₂ emissions in some cases.

“On the surface, 45Q should help cut emissions, since it pays companies to capture carbon,” Mason says. “Unfortunately, the way it’s designed also rewards facilities for producing more emissions to capture -- essentially, the more CO₂ a facility emits and captures, the more taxpayer money it earns -- potentially incentivizing increased operation or extended lifespans for existing fossil fuel-based facilities.”

The study points out three major flaws in the current incentive. First, large coal or gas power plants that install carbon-capture equipment might increase their output and fuel use because the credit offsets their costs -- a dynamic that could extend the plants’ operating hours or lifespans and diminish the net reduction in emissions.

Second, 45Q disproportionately rewards the biggest carbon emitters. A coal-fired power plant gets more credit per hour than a cleaner natural gas plant, simply because it emits more CO₂. This could unintentionally discourage efficiency improvements or other methods of reducing emissions, as reducing emissions also reduces the subsidy.

Finally, there are potential health and environmental side-effects -- for example, the common amine-based CCS technology can increase ammonia emissions, which contribute to fine particulate pollution. Without additional safeguards, widespread CCS deployment might result in localized air quality issues even as it tackles global carbon emissions.

Mason notes that the issue hits close to home.

“For an energy-producing state like Wyoming, carbon capture has real significance,” he says. “We have coal and gas facilities that might adopt CCS. Our research shows we need to be smart about incentive design to avoid wasting billions of dollars with little climate benefit.”

The PNAS paper was co-written by an interdisciplinary team of experts in environmental economics and energy policy, including researchers from Cornell University, the University of Texas at Austin, the University of Notre Dame and Oxford University.

The team’s central recommendation is that policymakers rethink and redesign CCS incentives so that they drive down emissions in a cost-effective way, with fewer unintended consequences. For example, one proposal is to tie the subsidy to clean energy output -- such as paying per megawatt-hour of electricity generated under a strict emissions rate -- rather than paying purely per ton of CO₂ captured. This would reward low-carbon performance instead of higher pollution.

The team also suggests pairing a scaled-back 45Q subsidy with a modest price on any remaining CO₂ emissions, to ensure companies have financial motivation to minimize all emissions, not just those that can be captured. Additionally, strong regulatory safeguards could be implemented -- for instance, requiring CCS projects to deploy technologies that limit ammonia slip and other side pollutants -- so that public health isn’t compromised in the pursuit of lower carbon output.

In addition to shaping climate policy discussions, the publication itself is a proud milestone for UW’s College of Business. PNAS, established in 1914, accepts only high-impact research of broad interest -- making Mason’s contribution a noteworthy achievement for the university’s research profile.

“This is a big deal for our college and for UW,” says Scott Beaulier, the College of Business H.A. “Dave” True Jr. Family Dean. “We’re proud to see our faculty recognized in a journal of this caliber. It elevates the visibility of the innovative work happening here in Wyoming.”

As discussions continue regarding federal climate strategies, Mason and his co-authors hope their insights will inform more effective approaches to deploying carbon capture technology.

“Our message to policymakers is that CCS can play a role in reducing emissions, but we have to get the incentives right,” Mason says. “With some thoughtful redesign, we can avoid the pitfalls and make sure we’re spending public dollars in a way that truly helps meet their intended goals.”