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
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
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.
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 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
Thumbnail shows money. Image by Shutterstock.
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