The recent article titled “The Costly Gaps Threatening Carbon Capture and Storage Projects’ Tax Credits and Compliance” highlights critical vulnerabilities in the insurance and risk management frameworks for carbon capture and storage (CCS) projects, particularly as they scale from pilots to commercial operations. These gaps arise from fragmented coverage that fails to fully address the interconnected risks across a project’s lifecycle, including construction, operations, environmental incidents, financial exposures, and regulatory compliance. Such shortcomings can lead to disqualification from federal incentives like the 45Q tax credit, massive remediation costs, and even project failure, especially amid growing reliance on CCS for corporate climate goals and government subsidies.
Key Gaps and Threats
Traditional insurance policies often treat risks in silos—e.g., separate coverage for construction mishaps versus environmental liabilities—leaving “costly gaps” where exposures overlap. For instance:
- Construction and Operational Risks: Activities like installing storage tanks could puncture existing wells, causing leaks (e.g., oil or CO₂) that trigger multimillion-dollar cleanups. Without integrated contractors’ pollution liability, this could lead to layoffs or bankruptcy.
- Environmental and Leakage Risks: CO₂ escaping from storage sites not only poses health and ecosystem threats but also requires expensive remediation and could void carbon credits, forcing companies to repurchase offsets or face penalties.
- Financial and Tax Credit Vulnerabilities: Missing a compliance step post-investment might disqualify a project from 45Q credits (up to $85/ton for sequestration), destabilizing funding and investor returns. A single failed audit or leak could result in credit recapture, amplifying losses.
- Regulatory Compliance Issues: Recent U.S. Department of Energy (DOE) funding cuts (e.g., $3.7 billion withdrawn from 24 projects in 2025) and EPA changes to the Greenhouse Gas Reporting Program (GHGRP) exacerbate gaps in verifying CO₂ storage, making it harder to prove eligibility for incentives. An IRS audit revealed that nearly $894 million in 45Q claims from 2010-2019 lacked proper documentation, underscoring widespread non-compliance.
These issues are compounded by high costs—CCS projects often exceed $100/ton in abatement for sectors like cement or steel—and reliance on subsidies, with critics arguing the technology represents a taxpayer-funded boondoggle prone to failure and overruns. Offshore CCS amplifies expenses and risks, often requiring billions in public support like tax credits or loans, while threatening long-term liabilities.
Insurance and Mitigation Strategies
Insurers are responding with innovative, tailored products. For example, AON launched a CCUS policy in 2024 covering reservoir integrity, revenue losses, and indemnity for lost tax credits due to leaks. Recommendations include:
- Integrated Policies: Combining coverage under one carrier for the full lifecycle, with rapid-response features for emergencies to preserve compliance and credits.
- Collaborative Underwriting: Involving experts in environmental, construction, and tax liability to close gaps.
- Policy Reforms: Boosting 45Q to $120/ton to bridge cost gaps for hard-to-abate industries, and maintaining GHGRP for verifiable reporting to avoid disruptions.
On the flip side, some stakeholders, including bipartisan lawmakers, advocate repealing 45Q entirely, citing poor performance and risks to property rights. Recent Treasury guidance aims to clarify paths for credit claims amid EPA shifts, but experts warn that without addressing these gaps, CCS deployment could stall despite its potential in climate mitigation.