The United Nations has recognized that carbon capture and sequestration is a “key technology” in the quest to keep global temperatures from rising above the scientifically-accepted threshold of two degrees Celsius.  One carbon capture method that is increasingly garnering attention is direct air capture (“DAC”).  While DAC technology allows companies to permanently remove carbon dioxide (“CO₂”) from the atmosphere, companies seeking to bring the technology to scale must navigate significant legal challenges.

How DAC Works

Burning fossil fuels, such as coal, converts a storable form of carbon into energy, CO₂, and several other byproducts.  But, the process of converting CO₂ gas back into a storable form of carbon is much more difficult.  Flue gas scrubbers are one example of an early technology that removes CO₂ from air.  Flue gas scrubbers are built into the infrastructure of powerplants and remove various greenhouse gases, including CO₂, from the powerplants’ exhaust. While scrubbers significantly reduce the amount of CO₂ being released into the atmosphere from powerplants, they do nothing to remove the CO₂ already in the atmosphere. 

To address atmospheric CO₂, scientists and companies have been advancing DAC technologies.  For various reasons, capturing and storing atmospheric CO₂ has been energy intensive and financially unattractive.  However, recent developments in green tech have begun to change DAC’s economics.

Removing CO₂  From Ambient Air

There are several different processes being developed to remove CO₂ from ambient air.  In California, Heirloom Carbon Technologies is pioneering a process that captures CO₂ with limestone rocks.  Heirloom superheats limestone rocks (using renewable energy), which causes a chemical reaction that removes CO₂. Specialized systems capture the CO₂ as it “burns” off, and the CO₂ is permanently deposited underground or stored in concrete.  The decarbonized limestone is then transferred to towers where atmospheric air circulates over the rock, and as the air molecules hit the limestone, the CO₂ from the air is absorbed.  After several days of air circulation, the limestone is returned to the furnace, and the process begins again.  Heirloom hopes its technology can permanently remove 1 billion tons of CO₂ by 2035.

In Iceland, Climeworks uses a specialized filter that captures CO₂ when atmospheric air passes over it.  In 2021, Climeworks opened its first DAC plant, which is capable of removing up to 4,000 tons of CO₂ from the atmosphere per year; the equivalent of removing over 850 cars from the road.  A second Climeworks plant is under construction that can remove an additional 36,000 tons of CO₂ per year.

In a third project currently in testing at various locations around the world, Vesta is seeking to utilize a technology related to DAC known as coastal carbon capture (“CCC”).  CCC uses tidal action to slowly erode a mineral known as olivine.  When olivine is dissolved in oceanwater, a chemical reaction occurs that can remove CO₂ from the atmosphere.  Vesta estimates that deploying olivine in only 0.1%-0.25% of global shelf seas could be sufficient to remove 1 billion tons of CO₂ from the atmosphere, which would offset more than 60% of the CO₂ generated by the U.S. electrical grid.

These three projects exemplify the innovation rapidly evolving in the DAC industry.  The potential for DAC is enormous.  But as promising—and necessary—as DAC technology is, it raises a host of serious legal and technical issues that must be navigated before these new technologies can be implemented on any significant scale.   

Getting Started

Green Tech Investment.  DAC, like all emerging technologies, requires a significant investment to grow and develop.  While there has been progress in making DAC projects more economical, they are still generally viewed as risky investments.  To help encourage new investment in the technology, the Biden administration recently announced $1.2 billion in funding for DAC projects.  To get a slice of that funding, companies (and investors) must navigate the federal funding process and that process often requires providing information regarding additional investors from the public and private sector.  Legal and technical expertise are necessary to navigate the funding process and to identify the myriad of options that may exist in the United States. 

Real Estate. Unlike other carbon capture and sequestration methods, like flue gas scrubbers, DAC is location independent.  Because CO₂ is uniformly distributed in the atmosphere, DAC projects can be built anywhere in the world and operate with similar efficacy.  Therefore, among other considerations, DAC companies and investors should be particularly mindful of land-use restrictions such as zoning and environmental permitting requirements and restrictions.

Making (and Keeping) DAC Profitable

Tax Credits.  DAC has been notoriously expensive, costing up to $1,000 per ton of CO₂ removed.  However, as the technology advances and investor interest grows, the costs associated with DAC are dropping.  To help the DAC industry get its footing, federal tax credits now exist to subsidize the cost.  Section 45Q of the Internal Revenue Code outlines the parameters for carbon capture tax credits.  In 2022, the Inflation Reduction Act increased the maximum amount that entities can claim in tax credits to $85 per ton of CO₂ permanently removed from the atmosphere.  Accordingly, DAC projects need knowledgeable tax counsel to take full advantage of the tax credits that now exist.

Truthful Advertising.  In addition to tax credits, a large source of revenue for DAC projects are companies seeking to offset their CO₂ emissions.  Companies that have pledged to be climate neutral are increasingly turning to DAC projects to remove CO₂.  For example, Airbus recently purchased carbon removal credits to have 400,000 tons of CO₂ offset by a DAC facility operated by Carbon Engineering. In advertising the potential carbon offsets that a DAC project can offer, the DAC project advisors and the company must be mindful of the upstream and downstream emissions of the project.  For example, if a DAC project is powered by a coal-burning powerplant[JMT1] , the amount of CO₂ being offset is less than the amount of CO₂ being produced to power the DAC project.  Being aware of the true amount of carbon being sequestered is essential for the DAC project to accurately and lawful advertise its service, and for the company to truthfully claim the amount of carbon it is paying to offset.  Thus, if a DAC project wants to ensure its operations are powered by renewable energy, it must negotiate and obtain renewable energy certificates, otherwise known as Guarantee of Origin certificates in the European Union.  The leading seller of these certificates in the United States and Canada is Green-e, which certifies renewable energy plants and sells clean energy credits to business. 

Planning and Anticipation of Federal, State, and Local Regulations

Environmental Accidents.  Federal and state environmental agencies can be expected to examine the environmental impacts of any DAC project.  One scenario that must be addressed in connection with the development of any DAC project is the risk of a CO₂ leak.  In 2020, a pipeline leaked CO₂ near a Mississippi town.  Creating at least an initial, but nonbinding, precedent, following an investigation, an agency within the U.S. Department of Transportation recommended $3.8 million [JMT2] [SPB3] in fines.  The risk is not theoretical and applicable federal, state, and local regulators can be expected to weigh on risk management strategies including prevention, mitigation, and procedures in the event of a release.

Conclusion

DAC projects offer an innovative and necessary solution to avoid the worst effects of climate change.  The issues addressed above are only a small sample of the legal issues that may arise during the life of a DAC project.  To ensure your DAC project succeeds, DAC companies, investors, and customers should consult with counsel to ensure the project is successful, economical, and compliant.