INSIGHT: Texas is closer to reviving tax breaks that helped chem projects

HOUSTON (ICIS)–The Texas legislature could revive a tax break that lapsed in 2022 and that had cut costs for numerous petrochemical plants and midstream projects while attracting ambitious low-carbon fuel projects that combined process technologies in novel ways.

• The petrochemical and refining industry in the US is concentrated in Texas and other states on the Gulf Coast, and some of the nation’s biggest projects benefited from the expired tax break, known as the Chapter 313 School Value Limitation Agreement
• The tax break attracted green hydrogen and ammonia plants and ambitious alternative-fuel projects that rely on direct-air capture, biomass gasification and Fischer-Tropsch reactors
• If the tax break passes, it would add to the federal incentives for which hydrogen plants and alternative-energy projects can apply

TAX BREAK BILL HEADS TO THE TEXAS SENATE
The replacement bill is called the Texas Jobs and Security Act and it passed the state’s lower chamber as House Bill 5 in a 120-24 vote.

On Monday, the state’s upper legislative chamber received the bill.

If passed, the tax-break programme would last until the end of 2033.

Arguably, the tax-break programme did not make or break large petrochemical projects, since the US has limited sites with Texas’s mix of low-cost feedstock, energy and access to existing infrastructure and logistics.

However, the tax-break applications were often one of the first places where companies would publicly disclose their plans.

In addition to petrochemical plants, midstream projects such as natural gas processing plants and fractionators had applied for the tax breaks. These projects provided the new chemical plants with the access to the low-cost feedstock that they needed.

During its final years, the programme saw a surge in applications for chemical recycling plants, green hydrogen projects, direct-air-capture plants and advanced-fuel projects.

RENEWABLE FUELS CAN APPLY UNDER NEW BILL
The replacement bill is similar to Chapter 313 with one big exception: projects that produce intermittent power cannot apply for the tax break. That rules out solar panels and wind turbines, since they do not produce a steady amount of electricity.

However, the bill defines ineligible projects in terms of whether they produce continuous power. Renewable and alternative fuel projects fall outside of this definition, so they are not automatically disqualified from the tax break.

In fact, the bill singles out hydrogen fuel or feedstock as a project that would qualify for the breaks.

If the replacement bill becomes law, then new hydrogen plants and alternative-fuel projects could applying for the tax break.

PILING ON INCENTIVES
If Texas revives its tax-break law, it will offer incentives on top of those offered by other states and the federal government.

Low-carbon fuel projects have long benefitted from California’s Low Carbon Fuel Standard (LCFS).

The US states of Oregon and Washington as well as the Canadian province of British Columbia have adopted LCFS policies.

Other states considering such standards include Colorado, Illinois, Iowa, Minnesota, New York, Pennsylvania and South Dakota.

FEDERAL INCENTIVES
For Texas and the rest of the US, the Inflation Reduction Act (IRA) expanded existing tax credits, made others more lucrative and created new ones for a variety of low-carbon projects.

The following summarises some of the energy tax provisions in the IRA.

• The Advanced Energy Project Credit under Section 48C is a competitive tax credit that can be rewarded to plants designed to reduce greenhouse gas emissions by at least 20%. Projects that receive the Section 48C credits cannot stack them with other Section 48 credits for any products or materials produced at the plant
• The Clean Fuel Production Credit under Section 45Z provides a production tax credit for low-carbon fuels that increases based on the magnitude of their carbon savings. The size of the tax credit is larger for sustainable aviation fuel
• The Sustainable Aviation Fuel Credit under Section 40B creates a $1.25/gal credit for sustainable aviation fuel that are sold or used. The size of the credit increases with the fuel’s carbon savings for a maximum of $1.75/gal
• The Credit for Carbon Oxide Sequestration under Section 45Q provides a $17/tonne credit for carbon dioxide that is stored underground; $12/tonne for CO2 used in other processes, whether its for enhanced oil recovery or chemical production. For direct-air capture, the tax credits are worth $36 for sequestration and $26 for utilisation. The credits cannot be stacked with Section 45V hydrogen credits
• The Clean Hydrogen Production Tax Credit under Section 45V awards tax credits for hydrogen plants that increase based on their carbon savings. These cannot be stacked with the Section 45Q carbon-capture credits

Other federal programmes are also lowering costs for sustainability projects in Texas. Houston is among the places applying for the Department of Energy’s hydrogen hub programme. This programme was created by the Bipartisan Infrastructure Law.

The federal programmes and the LCFS programmes could have a multiplier on a revived Texas tax-break law. If that’s the case, Texas could see another surge in carbon-capture, hydrogen and alternative fuel projects.

That would come on top of any proposed petrochemical and midstream projects.

THE PROJECTS
The following table shows some of the projects that applied for the tax breaks under the expired Texas law.

Company	Product	Plant type	Capacity	Construction Start	Commerical Operations	School District
Air Liquide Large Industries US	O2, N2	air separation unit	2,000 tonnes/day	Oct 2020	Oct 2021	Ingleside
Air Products	CO, H2	methane reformer	33MM cf/day CO, 18MM cf/day H2	March 2022	Nov 2023	La Porte
Arbor Renewable Gasoline – Phase 1	renewable fuel or H2	gasification, methanol	NA	Q1 2022	Q4 2023	Beaumont
Arkema	Intermediates		NA	October 2023	Jan 2025	Beaumont
Brazos Delaware Gas LLC	natgas, NGLs	natgas processing plant	200MM cf/day	1 Jan 2023	31 Dec 2023	Pecos-Barstow-Toyah
Brightmark Plastics Renewal Texas	pyrolysis oil	chemical recycling	8.4m tonnes of waste plastic	1 May 2022	Dec 31, 2024	Dayton
Chevron Phillipos Chemical	1-hexene	1-hexene	NA	Q1 2022	Q4 2023	Sweeny
Chevron Phillips Chemical	polymer grade propylene	propylene splitter	1bn lb/year PGP	Q1 2022	Q4 2023	Goose Creek
Covestro	MDI, PC	MDI, PC	NA	1 Jan 2025	2027	Goose Creek
Eastman	PET chem recycling	methanolysis/PET	150,000 tonnes/year rPET	Q4 2024	Q4 2026	Texas City
Eastman	PET chem recycling	methanolysis/PET	150,000 tonnes/year rPET	Q4 2024	Q4 2026	Hallsville
Enterprise Product	ethylene	cracker	2m tonnes/year	Q2 24	15 June 2027	Beaumont
Enterprise Products	purity NGLs	fractionator	150,000 bbl/day	Q2 24	5 Nov 2027	Barbers Hill
Enterprise Products	ethylene	cracker	2m tonnes/year ethylene	Q2 24	5 Nov 2027	Barbers Hill
Enterprise Products	propylene	metathesis	1.1bn lb/year	Q2 24	12 Oct 2027	Barbers Hill
Enterprise Products	ethane export terminal	terminal	300,000 bbl/day	Q3 2022	30 Dec 2024	Orangefield
Enterprise Products	ethylene	cracker	2m tonnes/year	Q2 2024	2027	Orangefield
Enterprise Products	propylene, propane	propylene/propane splitter	45,000 bbl/day	Q2 2022	30 June 2024	Barbers Hill
Equistar (LyondellBasell	propylene	NA	950m lb/year	1 June 2025	1 Jan 2029	Sheldon
Equistar (LyondellBasell)	polyethylene	polyethylene	worldscale	1 Jan 2027	Dec 2028	Calallen
ETC Texas Pipeline	natgas, NGLs	natgas processing plant	200MM cf/day	1 Aug 2022	31 Dec 2022	Wink-Loving
Formosa Plastics	EDC/VCM	EDC/VCM	NA	2021	2023	Calhoun County
Formosa Plastics Corporation Texas	1-hexene	1-hexene	NA	Jan 2024	2026	Palacios
Fulcrum Trinity	renewable fuel	gasification/Fischer Tropsch	31m gal/year fuel	Q3 2023	2026	Barbers Hill
HIF USA	renewable fuel	electrolyser, methanol, methanol-to-gasoline	200m gal/year fuel	Q2 2023	Q4 2025	Palacios
HIF USA	renewable fuel	electrolyser, methanol, methanol-to-gasoline	200m gal/year fuel	Q2 2023	Q4 2025	Tidehaven
HIF USA LLC	renewable fuel	electrolyser, CO2-to-methanol, methanol-to-gasoline	200m gal/year fuel	Q2 2024	Q4 2027	Glen Rose
HyFuels Big Spring	green hydrogen, ammonia, methanol, natgas	electrolyser	400,000 tonnes/year H2	Q1 2027	Dec 2027	Big Spring
HyFuels Green Lake	green hydrogen, ammonia, natgas, methanol	electrolyser	400,000 tonnes/year H2	Q1 2027	Dec 2027	Calhoun County
Martin Operating Parnership	ultra-pure sulphuric acid	ultra-pure sulphuric acid	NA	1 Jan 2023	Dec 31, 2023	Plainview
Nacero	gasoline	methane reformer, methanol, methanol-to-gasoline	90,000 bbl/day	1 Nov 2021	1 Sept 2024	Ector County
OCI Clean Ammonia	ammonia, urea, UAN	ammonia, urea, UAN, nitric acid	6,000 tonne/day ammonia, 2,200 tonne/day urea	2023	2027	Beaumont
OCI Fuels USA	renewable fuel	gasification, methanol, gasoline unit	1m tonnes/year methanol, 100,000 tonnes/year gasoline	2023	2027	Beaumont
Oxy Vinyls	chlorine, caustic soda	chlor-alkali plant	NA	Q3 2023	Q2 2026	Deer Park
Permico Midstream	purity NGLs	fractionator	2 150,000 bbl/day fractionation trains	Jan 2026	Jan 1, 2028	Robstown
Petrologistics PDH	propylene	PDH	700,000 tonnes/year	June 2025	Jan 2028	Alvin
Phillips 66	purity NGLs	fractionator	150,000 bbl/day	Jan 2026	Dec 2027	Sweeny
Plug Project	green H2	electrolysis	45 ton/day H2	Q3 2022	Q3 2023	Newcastle
Proman	methanol	waste gasification, electrolyser	200,000 tonne/year methanol	Jan 2024	June 2027	Pampa
Roehm America	MMA	LiMA	NA	Q4 2021	Q4 2023	Bay City
Sandpiper Chemicals	methanol	SMR, methanol unit	3,000 tonnes/day	Jan 2026	Dec 2027	Texas City
Stateline Processing	natgas, NGLs	natgas processing plant	400MM cf/day	1 Sep 2022	1/1/2024	Pecos-Barstow-Toyah
Stepan	alkoxylates	alkoxylation	NA	Q3 2021	Q3 2023	La Porte
Targa Downstream	purity NGLs	fractionator	120,000 bbl/day	1 Aug 2023	31 Dec 2024	Barbers Hill
Texas Renewable Fuels (Phase I)	renewable diesel, naphtha	gasification, Fischer-Tropsch	33m gal/year fuel	Jan 2025	Dec 2027	Newton
Texas Renewable Fuels (Phase II)	renewable diesel, naphtha	gasification, Fischer-Tropsch	33m gal/year fuel	Jan 2028	Dec 2029	Newton

Insight article by Al Greenwood

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