(The Center Square) – Spokane may spend up to $210 million, with an additional $21 million in annual operating expenses, to comply with state climate policies after the Legislature denied it an exemption.
The project would install carbon capture equipment at the city’s Waste-to-Energy plant to suck carbon dioxide from the smokestack. The new upgrades would essentially turn the CO2 into carbonated water before the city could transport it off-site to inject the substance into the ground for long-term storage.
CarbonQuest, a company that develops the technology out of Spokane Valley, presented the Spokane City Council with the results of a $650,000 feasibility study on Monday. The Climate Commitment Act funded that report, but taxpayers might end up paying for some of the bill if the project doesn’t go as planned.
“So $210 million is basically what we would be pitching to the voters,” Councilmember Michael Cathcart said, noting the $3.25 million in annual savings compared to buying CCA allowances, “but that has a pretty heavy assumption on the fact … tax credits were going to be involved that entire time, right?”
The CCA is a statewide program that limits the amount of greenhouse gases an entity can emit, unless it buys additional allowances at quarterly auctions. The state sold 6.9 million carbon credits this month for $64.30 each, raising about $446 million, with the majority of that money going to the state.
Critics attribute the state’s gas prices, with the average recently at the highest in the nation, to the CCA.
If Spokane doesn’t bring its Waste-to-Energy facility, which generates electricity by burning trash, into compliance, the CCA could cost taxpayers an estimated $8 million annually through higher rates. Michael Laucius, vice president of business development at Carbon Quest, argues federal tax credits can pay for the project.
The Internal Revenue Service offers tax credits for carbon sequestration, which it refers to as the 45Q credit. Entities with projects that capture carbon can receive the credits as a payment per ton of CO2, or they can sell them to other entities, as long as construction begins before Jan. 1, 2033. Entities can also sell another type of credit in the international market to offset the emissions of other groups.
“From what we’ve seen now, there’s companies generating carbon credits now,” Laucius told Cathcart regarding the viability of selling them. “As a next step, we would then make inquiries, project specific to this, the value and the interest in those … credits, but we’re confident we could monetize that.”
The issue is that the IRS doesn’t pay out 45Q credits until after verifying eligibility, so if the city has hiccups along the way, the federal government could delay payments. Debt service and operating costs would continue in the meantime, and if revenue underperforms, taxpayers may cover the difference.
The international market is also tied to buyer demand and benchmarks that change from time to time.
According to an economic analysis, building the $210 million project could result in a revenue stream of $41.4 million annually, with operating costs of $21.4 million. If the city opted for a smaller facility, the annual revenue would be $24.4 million, with operating costs at $13.3 million after CCA penalties.
The goal would be to pay it off over the course of a decade, according to the study.
The plan looks good on paper, but it depends on everything going smoothly. If payments are delayed or the international market falters, local taxpayers might see their utility rates go up to cover the gap.
The carbon capture project would also use up pretty much all the electricity that the Waste-to-Energy generates, so the city wouldn’t have any left over to sell to the roughly 11,000 homes that it supplies.
“We’re ready to work with the city to develop a plan for next steps,” Laucius said, noting an extended timeline that involves coordination with the state and validating market assumptions, before bidding.
