I. Infrastructure Investment and Jobs Act
In November 2021, the midstream industry received a large future mandate with the enactment of the Infrastructure Investment and Jobs Act (the “IIJA”). The $1.2 trillion infrastructure bill contains billions of dollars of appropriations for research and development, grants, and other programs to advance the United States’ burgeoning carbon capture and clean hydrogen industries. Included in these appropriations is funding for new and existing midstream infrastructure that will play an essential role in the growth and development of the midstream industry, and that will ensure the midstream industry is a key player in the energy transition. Accordingly, midstream companies should study whether, and how, it can participate in these programs and share some of these appropriations.
II. Carbon Capture, Utilization and Storage
In the IIJA, Congress affirmed its investment in carbon capture, utilization, and storage (“CCUS”) and the importance of CCUS to the U.S. economy.1 CCUS is necessary for the oil and gas industry to achieving decarbonization goals identified by Congress, particularly with regard to reducing “hard-to-abate emissions from the industrial sector.”2 Moreover, the “large-scale deployment of carbon capture, removal, utilization, [and] transport…will drive regional economic development, technological innovation, and high-wage employment.”3
But for CCUS to work, “carbon capture, removal, and utilization technologies require a backbone system of shared carbon dioxide transport and storage infrastructure to enable large-scale deployment, realize economies of scale, and create an interconnected carbon management market.”4 Unfortunately, however, the nascent CCUS industry has, thus far, faced strong economic headwinds because “carbon dioxide transport and storage infrastructure share similar barriers to deployment previously faced by other types of national infrastructure, such as high capital costs and ‘chicken-and-egg’ challenges, that require [f]ederal and [s]tate support, in combination with private investment to be overcome.”5
In the IIJA, Congress provides that federal support—and incentives for state support—by creating programs and incentives to assist CCUS companies and the midstream industry to overcome these barriers to deployment. Some of the IIJA’s most important provisions promoting CCUS and midstream investment are summarized below:
- Carbon Utilization Program: $310 million over five years is appropriated for the establishment of a grant program to incentivize the use and development of products that (i) use or are derived from anthropogenic carbon oxides and (ii) demonstrate significant net reductions in lifecycle greenhouse gas emissions compared to incumbent technologies, processes, and products.6
- Carbon Capture Technology Program: $100 million over five years is appropriated for the establishment of a front-end engineering and design program for carbon dioxide transport infrastructure necessary to enable deployment of carbon capture, utilization, and storage technologies.7
- Carbon Dioxide Transportation Infrastructure Finance and Innovation: $2.1 billion is appropriated for the establishment of a loan program for the development of infrastructure to transport carbon dioxide.8 Among other factors, priority for these funds will be given to projects that are within, or adjacent to, existing pipeline or other linear infrastructure corridors.9
- Storage Validation and Testing: $2.5 billion over five years is appropriated for the establishment of a program under which funding will be provided for the development of new or expanded commercial large-scale sequestration projects and associated carbon dioxide transport infrastructure.10 This funding is open to projects at any stage of development and is intended to facilitate expeditious development of these projects.11
- Secure Geologic Storage Permitting: $50 million over five years is appropriated to award grants to state for underground injection control programs for permitting Class VI wells for the injection of carbon dioxide.12
- Geologic Carbon Sequestration on the Outer Continental Shelf: The IIJA authorizes the Secretary of the Interior to convey leases, easements or rights of way on the outer Continental Shelf for long-term geologic carbon sequestration.13
- Carbon Removal: $3.5 billion is appropriated for the development of four regional direct air capture hubs.14
Similar to its incentives for CCUS and associated midstream investment, the IIJA also invests heavily in the development and expansion of the clean hydrogen industry in the United States through the establishment of national standards, federal grants and incentives, and other programs. The midstream industry should pay attention to these incentives, especially where companies can find investment for midstream infrastructure development and repurposing, including retrofitting existing pipeline and storage facilities to enable transportation, storage, and delivery of clean hydrogen.
While interested companies should note that many of the incentives in the IIJA respecting hydrogen require the hydrogen to be so-called “clean hydrogen,” or “hydrogen produced with a carbon intensity equal to or less than 2 kilograms of carbon dioxide-equivalent produced at the site of production per kilogram of hydrogen produced,”15 companies should understand that “clean hydrogen” is not limited to hydrogen produced through electrolysis, but also includes hydrogen produced using hydrocarbons, CCUS, nuclear energy, and biomass. Accordingly, the IIJA recognizes no difference between the different hydrogen colors so long as they have a carbon intensity equal to or less than two kilograms of carbon dioxide-equivalent per kilogram of hydrogen.
The key provisions of the IIJA creating incentives for clean hydrogen and midstream infrastructure development are summarized below:
- Clean Hydrogen Research and Development Program: The IIJA mandates the creation of a Clean Hydrogen R&D Program. In carrying out the program, the Secretary of Energy, in partnership with the private section, shall conduct activities to advance and support the safe and efficient delivery of hydrogen or hydrogen-carrier fuels. This includes transmission by pipelines, including retrofitting the existing natural gas pipeline infrastructure to enable it to transport and deliver increasing levels of clean hydrogen, clean hydrogen blends, or clean hydrogen carriers.16 Additionally, the program includes storage of hydrogen or hydrogen-carrier fuels in tanks, salt caverns, underground reservoirs, and other facilities, and the development of materials for safe and economic storage in gaseous, liquid, or solid form.17
- Regional Clean Hydrogen Hubs: $8 billion is appropriated for the establishment of at least four regional clean hydrogen hubs.18 A ‘regional clean hydrogen hub’ is a network of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity.”19 At least two of these hubs are required to be located in regions of the U.S. with the greatest natural gas resources.20
- National Clean Hydrogen Strategy and Roadmap: The IIJA instructs the Secretary of Energy, in cooperation with the heads of relevant offices of the Department of Energy, to develop a national strategy and roadmap that focuses on facilitating the production, processing, delivery, storage, and use of clean hydrogen.21 The strategy includes the development of an initial standard for the carbon intensity of clean hydrogen after considering input from industry and other stakeholders.22 Part of this strategy also includes identifying the opportunities to use—and challenges to using—existing natural gas midstream infrastructure for the processing, transportation, storage, and use of clean hydrogen.23 Additionally, the strategy should identify economic opportunities for the production, processing, transport, storage, and use of clean hydrogen that exist in the major shale natural gas-producing regions of the U.S.24
- Clean Hydrogen Manufacturing and Recycling: $500 million is appropriated over a five-year period for the Secretary of Energy to provide multiyear grants and enter into agreements with eligible entities working on clean hydrogen manufacturing and recycling projects.25
- Clean Hydrogen Electrolysis Program: $1 billion is appropriated over a five-year period for the establishment of a research, development, demonstration, commercialization, and deployment program to improve the efficiency, increase the durability, and reduce the cost of producing clean hydrogen using electrolyzers.26 This investment should be particularly important for midstream companies considering the long-term viability of hydrogen pipelines and associated infrastructure.
IV. Looking Forward
The IIJA contains many incentives for midstream companies in respect of CCUS and hydrogen because a large number of the appropriations intend to fund the development and/or repurposing of transportation and storage infrastructure for CCUS and hydrogen. Particularly for the midstream industry, the creation of CCUS and hydrogen hubs will likely result in significant demand for new carbon oxide and hydrogen pipelines. Likely, greenfield projects or retrofitting existing infrastructure will be the avenues taken to accommodate the hubs and also to encourage the further development of carbon dioxide and hydrogen trading platforms, indices, and other commodity trading activities. Altogether, the investments under the IIJA combined with swift action from both the public and private sectors could likely result in significant growth towards the development of mature CCUS, hydrogen activities and associated midstream infrastructure in the United States.
1See Infrastructure Investment and Jobs Act, H.R. 3684, 117th Cong. § 40301.
2Id. at § 40301(2).
3Id. at § 40301(4)(B).
4Id. at § 40301(5).
5Id. at § 40301(7).
6Id. at § 40302.
8Id. at § 40304(999B).
9Id. at § 40304(999H).
10Id. at 40305.
12Id. at 40306.
13Id. at 40307.
14Id. at 40308.
15Id. at 40315(822).
16Id. at 40313(e)(6).
17Id. at 40313(e)(8).
18Id. at 40314 (813).
19Id. at 40314 (813)(a).
20Id. at 40314(813)(c)(3)(D)
21See id. at 40314 (814).
22Id. at 40314 (814)(2)(A).
23Id. at 40314 (814)(2)(E).
24Id. at 40314 (814)(2)(C)(i).
25Id. at 40314 (815).
26Id. at § 40314 (816).
Visit 2021 – Traditional Energy Rebounds and Increased Energy Transition, for the complete list of individual, detailed articles associated with this publication.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.