New Tax Break for Clean Energy Draws Scrutiny

WASHINGTON — Blackstone, the New York-based asset supervisor with almost $1 trillion of investor funds, is transferring quickly into the clean-energy revolution, pushed partly by federal tax incentives that had been sweetened this summer season by the Biden administration and Congress.

However one in every of its bigger tasks — by a subsidiary referred to as Tallgrass Vitality — is drawing protests from environmentalists who argue that Blackstone’s effort in New Mexico is not going to do sufficient to fight local weather change, even when it receives tens of tens of millions of {dollars} a yr in federal subsidies meant to advertise efforts to deal with international warming.

Tallgrass intends to spend $600 million to rebuild a defunct coal-burning energy plant in northwest New Mexico into one which makes use of pure gasoline transformed into hydrogen to create electrical energy that will probably be despatched to households and companies in 4 states within the area.

The challenge could be eligible for a beneficiant tax break — producing about $30 million a yr in federal subsidies for its electrical energy technology — as a result of the climate-change-causing carbon generated by the plant could be collected after which buried deep underground, in a course of referred to as sequestration.

The local weather and tax laws handed this summer season by Congress and signed by President Biden, often called the Inflation Discount Act, elevated the carbon seize subsidy by 70 %, to $85 per ton of carbon that’s captured and buried.

The New Mexico challenge is anticipated to sequester about 380,000 tons of carbon yearly because it creates electrical energy. The regulation additionally created a brand new subsidy for hydrogen-powered electrical vegetation, that means there are two beneficiant tax breaks from which it may well select. (It may faucet into solely one in every of them.)

These federal tax breaks essentially change the economics of hydrogen-based energy tasks, making them rather more enticing to buyers like Blackstone and its companions, whereas in concept additionally offering advantages to the setting and electrical energy ratepayers.

“It has helped make the challenge extra viable,” mentioned Justin Campbell, vp of energy at Tallgrass Vitality.

However the Tallgrass challenge, if all goes as deliberate, could be a primary of its variety in the USA: a former coal-burning electrical energy plant transformed into one which burns solely hydrogen to create electrical energy. Development on the challenge has not began but, and a Tallgrass official mentioned the corporate was nonetheless evaluating the funds earlier than transferring forward.

Producing that energy requires some difficult steps which have raised questions concerning the long-term viability of the strategy.

Instead of coal, Tallgrass would take pure gasoline drilled from the New Mexico space and convert that gasoline into hydrogen by a course of referred to as methane reforming, which depends on high-pressure steam to separate hydrogen from the gasoline.

The steam reformer additionally removes carbon dioxide, which Tallgrass would accumulate after which ship deep underground for everlasting storage, eliminating a lot of the local weather change risk that comes from a coal-burning plant or perhaps a conventional pure gas-burning energy plant.

When the remaining hydrogen is burned to create electrical energy, it generates no carbon dioxide, explaining why the backers of the challenge say will probably be “zero emission” energy.

Emily Kent, a director on the Clear Air Activity Drive, an environmental group, mentioned hydrogen tasks fueled with pure gasoline just like the one Blackstone was proposing had been vital as a result of the electrical energy sector wanted to have dependable, carbon-free energy sources that might ship vitality when wind or solar energy may not be accessible.

“The priority is that we’d have hassle assembly hourly and every day vitality demand across the nation with solely intermittent sources like wind and photo voltaic,” she mentioned, saying the challenge is a type of what she calls “clear agency” energy.

The issue with the plan, in accordance with different vitality analysts and environmental engineers, is that the method is extraordinarily inefficient: Utilizing pure gasoline to create hydrogen could be very vitality intensive.

Even the U.S. Department of Energy notes that “it takes extra vitality to supply hydrogen (by separating it from different components in molecules) than hydrogen offers when it’s transformed to helpful vitality.”

Burning hydrogen to create electrical energy generates nitrogen oxide, one other pollutant that may trigger bronchial asthma and different respiratory illnesses. And the method of drilling and transporting pure gasoline to the location usually includes the discharge of methane, which is an much more potent explanation for local weather change than carbon dioxide.

Making issues worse, mentioned Bruce Robertson, an vitality business analyst who carried out a study of carbon capture projects worldwide, most of them have did not dwell as much as promised carbon elimination targets, that means they haven’t achieved the meant environmental advantages.

“The business has a historical past of over-promising and under-delivering,” he mentioned, pointing to less-than-anticipated carbon seize at tasks resembling Chevron’s Gorgon project in Australia, which additionally acquired authorities subsidies however then fell far in need of its carbon elimination targets.

All these causes have led some environmental engineers and vitality business analysts to query why Congress and the Biden administration are providing beneficiant subsidies to so-called blue hydrogen tasks that depend on pure gasoline to supply electrical energy.

By comparability, inexperienced hydrogen tasks — which may get much more beneficiant subsidies from the Inflation Discount Act — use electrical energy produced by wind or photo voltaic tasks to supply the hydrogen wanted to make energy, a extra environmentally pleasant course of.

“Blue hydrogen is essentially a creation of the gasoline business to attempt to extend the pure gasoline enterprise,” Mr. Robertson mentioned.

Tallgrass Vitality, in truth, is primarily a pure gasoline pipeline firm, and most of the greatest backers of the carbon seize know-how, resembling Exxon, are oil and gasoline corporations.

A spokeswoman at Blackstone, which has a majority stake in Tallgrass through a fund backed by the government of Saudi Arabia, declined to touch upon the challenge. Blackstone is run by Stephen A. Schwarzman, a major Republican donor and help of former President Donald J. Trump.

However executives at Tallgrass mentioned they had been assured they might ship on their guarantees, which embrace eradicating at the very least 95 % of the carbon dioxide generated when producing the hydrogen gasoline, a a lot increased carbon seize charge than has been achieved in different tasks.

The corporate can even work to make sure that it buys its pure gasoline from producers and pipeline corporations that restrict methane leaks, one other main supply of discharges that contribute to local weather change, mentioned Dwayne Phillips, vp of hydrogen at Tallgrass.

The New Mexico plant, operating on hydrogen, would assist be certain that the area had a gentle provide of electrical energy. When different renewable sources of energy had been accessible, the Tallgrass natural-gas-to-hydrogen plant might create hydrogen for different wants, resembling powering vehicles or space factories, a spokesman for Tallgrass mentioned.

The challenge has gained reward from Gov. Michelle Lujan Grisham of New Mexico, a Democrat who has been working to show the state into a middle for hydrogen manufacturing.

“New Mexico has what it takes to change into a global hydrogen hub, furthering our decarbonization and local weather efforts whereas creating high quality jobs for New Mexicans,” she said on the time Tallgrass purchased a 75 % stake in Escalante H2Power, which is overseeing the deliberate conversion of the facility plant.

The expanded federal subsidies include an additional bonus that permits challenge builders like Blackstone’s Tallgrass to take the tax break virtually like it’s a federal grant: a so-called direct pay provision that offers the corporate a cost for 5 years’ value of carbon seize credit.

Mr. Campbell, the vp for energy and transmission at Tallgrass, mentioned the first profit could be to restrict future will increase in the price of the facility delivered to households and companies within the West.

“What the tax credit score has performed for us is it permits us to have conversations with native utilities and current them an choice that’s decarbonized but additionally protects affordability of charges,” he mentioned. “We expect quite a bit about not simply decarbonization, but additionally reliability and affordability.”

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