Clean Energy Tax Break Draws Scrutiny of Natural Gas Plan in New Mexico

WASHINGTON – Blackstone, a New York-based asset manager with nearly $1 trillion in hedge funds, is fast moving into the clean energy revolution, in part because federal tax incentives was sweetened this summer by the Biden administration and Congress.

But one of its larger projects – through a subsidiary called Tallgrass Energy – is drawing opposition from environmentalists, who say Blackstone’s efforts in New Mexico will not be enough to fight climate change, even as it receives tens of millions of dollars a year in federal subsidies. to promote efforts to tackle global warming.

Tallgrass plans to spend $600 million to rebuild a defunct coal-fired power plant in northwestern New Mexico into a plant that uses natural gas converted to hydrogen to generate electricity that will be supplied to households. homes and businesses in four states in the region.

The project will qualify for a generous tax break – generating about $30 million per year in federal subsidies for power generation – because the climate change carbon generated by the plant will be collected. and then buried deep underground, in a process known as sequestration.

The climate and tax legislation passed by Congress this summer and signed by President Biden, known as the Inflation Reduction Act, increased the carbon capture subsidy by 70 percent, to $85 per ton of carbon. captured and buried.

The New Mexico project is expected to sequester about 380,000 tons of carbon annually to generate electricity. The law also creates a new subsidy for hydrogen-powered power plants, meaning there are two generous tax breaks they can choose from. (It can only mine on one of them.)

These federal tax breaks fundamentally change the economics of hydrogen-based power projects, making it much more attractive to investors like Blackstone and its partners, and in terms of The theory also benefits the environment and electricity payers.

“It made the project more viable,” said Justin Campbell, powerful vice president of Tallgrass Energy.

But the Tallgrass project, if all goes to plan, will be the first of its kind in the United States: a former coal-fired power plant converted into a hydrogen-only plant to generate electricity. . Construction on the project has yet to begin, and a Tallgrass official said the company is still assessing the financials before proceeding.

Generating that power requires a number of complex steps that have raised questions about the long-term viability of the approach.

Instead of coal, Tallgrass will take natural gas drilled from the New Mexico area and convert that gas into hydrogen through a process called methane reclamationbased on high pressure steam to separate hydrogen from gas.

The steam improver also removes carbon dioxide, which Tallgrass will collect and then send deep underground for permanent storage, eliminating much of the threat from climate change that comes from a coal-fired plant or even a traditional natural gas-fired power plant.

When the remaining hydrogen is burned to generate electrical energy, it does not produce carbon dioxide, explaining why supporters of the project say it will be a “zero-emissions” source of electricity.

Emily Kent, director of the Clean Air Task Force, an environmental group, says hydrogen projects using natural gas like the one Blackstone is proposing are important because the power sector needs to have reliable, carbon-free power source to be able to provide power. at times when wind or solar power may not be available.

“The concern is that we might find it difficult to meet the hourly and daily energy needs across the country with intermittent resources like wind and solar,” she said, and says the Escalante project is a form of electricity she calls “clean” electricity.

The problem with this plan, according to other energy analysts and environmental engineers, is that the process is extremely inefficient: using natural gas to make hydrogen is very energy-intensive.

Even US Department of Energy notes that “it takes more energy to make hydrogen (by separating it from other elements in the molecule) than it provides when it is converted to useful energy.”

Burning hydrogen to generate electricity produces nitrous oxide, another pollutant that can cause asthma and other respiratory illnesses. And the process of drilling and transporting natural gas to the site often involves the release of methane, an even stronger cause of climate change than carbon dioxide.

Bruce Robertson, an energy industry analyst who has conducted a study carbon capture projects Worldwide, most of them have fallen short of their promised carbon removal targets, meaning they have not achieved the intended environmental benefits.

“The industry has a history of over-promising and under-delivering,” he said Chevron’s Gorgon Project in Australiaalso received government subsidies but then failed to achieve their decarbonization target.

All of these reasons have led some environmental engineers and energy industry analysts to question why Congress and the Biden administration are offering generous subsidies for so-called green hydrogen-based projects. to natural gas to produce electricity.

By comparison, green hydrogen projects – which can be subsidized even more generously by the Inflation Reduction Act – use electricity produced by wind or solar projects to produce the hydrogen they need. to produce electricity, a more environmentally friendly process.

“Green hydrogen is largely a creation of the gas industry to try to prolong the natural gas business,” said Mr. Robertson.

In fact, Tallgrass Energy is primarily a natural gas pipeline company and many of the biggest proponents of carbon capture technology, such as Exxon Mobil, are oil and gas companies.

A spokesman for Blackstone, which has a majority stake in Tallgrass through a fund backed by Government of Saudi Arabia, declined to comment on the project. Blackstone is run by Stephen A. Schwarzman, a major donor of the Republican Party and the endorsement of former President Donald J. Trump.

But executives at Tallgrass say they are confident they can deliver on their promises, which include eliminating at least 95% of the carbon dioxide produced by hydrogen production, a much higher rate of carbon capture. compared to other projects achieved.

The company will also work to ensure that it buys natural gas from manufacturers and pipeline companies to limit leaks of methane, a source of emissions, said Dwayne Phillips, vice president of hydrogen at Tallgrass. other major contributors to climate change.

The plant in New Mexico, which runs on hydrogen, will help ensure that the region has a steady supply of electricity. Where other renewable energy sources are available, the Tallgrass hydrogen-to-natural gas plant can generate hydrogen that will be used for other needs, such as powering trucks or factories in the country. area, a Tallgrass spokesman said.

The project has won praise from Governor Michelle Lujan Grisham of New Mexico, a Democrat who has been working to turn the state into a hub for hydrogen production.

“New Mexico has what it takes to become an international hydrogen hub, further advancing our decarbonization and climate efforts, and creating quality jobs for New Mexicans.” she speaks at the time Tallgrass bought 75% of the shares in Escalante H2Poweris overseeing the planned power plant conversion.

Extended federal grants come with an additional bonus that allows developers of projects like Blackstone’s Tallgrass to enjoy the same tax relief as a federal grant: something known as a direct pay provision. provide the company with payment for the carbon sequestration over five credit years.

Mr Campbell, vice president of electricity and transmission at Tallgrass, said the key benefit is limiting future increases in the cost of providing electricity to homes and businesses in the West.

“What the tax credit has done for us is that it allows us to talk to local utility companies and give them a decarbonization option but also protects their ability to pay,” he said. exchange rate. “We think a lot about not only decarbonization but also reliability and affordability.”


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