2021 ] CARBON CAPTURE , UTILIZATION , AND SEQUESTRATION 71
1 . Industry and Private-Party Considerations
CCUS projects entail risks associated with the industry in which the emitter operates as well as risks that are unique to that emitter ’ s specific business . For projects where utilization of CO 2 is contemplated , similar risks related to the end-user of the CO 2 and its business also apply . These risks materialize in a variety of ways , including : operational risks ( will the industrial facility be operating at the anticipated level of output ?), reliability risks ( will the facility generating CO 2 need to shut down for repairs or due to seasonal factors ?), risks related to that particular participant ’ s contractual counterparties and capital providers ( is the emitter dependent on a key supplier or does it require additional investment capital to maintain production at a certain level ?), and viability concerns driven by political developments ( will increased regulations prevent a coal plant that is the source of the CO 2 from being able to operate for the entire life of the project ?).
Generally , the commercial arrangements among the participants in the project will force each party to internalize these industry-specific and businessspecific risks . For example , consider the risk of outages at an emitter ’ s facilities . While it is normal to provide the owner of facilities relief from complying with certain obligations for planned outages that are necessary to maintain its facilities and those due to events beyond its reasonable control ( e . g ., force majeure events ), unplanned curtailments in production and facility shutdowns should be treated differently . Events such as unplanned shutdowns of facilities or curtailments in production that persist for prolonged periods of time will often trigger termination rights , make-whole payment obligations , and other specific remedies for the other party .
2 . General Compliance and Recapture Risk under Section 45Q
As noted above , Section 45Q sets forth a number of specific requirements and qualifications that must be met in order to earn the tax credits available for CCUS projects . These requirements relate to the equipment used for capturing CO 2 . Additionally , the parties will have to take steps to ensure that any tax credits that are earned are not recaptured due to leakage of CO 2 from the facilities of the parties using or sequestering CO 2 captured in project operations . The Section 45Q credit recapture risk is driven by the ability of the users of CO 2 or storers of CO 2 to prevent captured CO 2 from escaping from their facilities or processes . Thus , the applicable Offtake Agreements should obligate the user / storer to conduct its operations in a way that minimizes the risk of leakage from its facilities . Further , in any arrangement where CO 2 captured by the project is utilized for EOR operations or sequestered in underground storage reservoirs , the user / storer of such CO 2 should be allocated responsibility for obtaining and maintaining the necessary real property rights in the applicable reservoirs where the CO 2 is injected .