Carbon Sequestration: Investments Are Booming

Regions Natural Resources and Real Estate group is helping clients identify an opportunity in carbon capture utilization and sequestration.
May 13, 2024 10:30 AM ET

By Dana Obrist

In recognition of Earth Day, Regions is sharing a series of articles that highlight how teams and associates across the bank are contributing to our commitment to operate in environmentally sound ways that make life better for all.

We’ve all heard that carbon dioxide (or CO2) in the environment is cited as a contributing factor to climate change – a topic that has been making headlines around the world for decades.

A lesser-known topic is one of the solutions positioned to reduce the effects of climate change and provide opportunity for large landowners: carbon sequestration.

What is Carbon Sequestration?

Carbon sequestration is the process of capture, removal and storage of carbon dioxide from the earth’s atmosphere. It has been recognized as a key method for removing excess CO2 from the environment. By capturing carbon at the industrial emission source before it enters the atmosphere, the process often referred to as carbon capture, usage and storage (CCUS) leverages a suite of technologies enabling the mitigation of CO2 emissions.

Carbon sequestration is yet another way for our clients to put their land to work for them by creating an additional revenue stream with possibly less impact to the surface of their land than more traditional oil and gas exploration.

Joseph Collier, Regions Natural Resources and Real Estate group mineral manager

Collier has been a mineral manager with Regions for 16 years. He and his team are at the forefront of the bank’s work with trust, agency and consulting clients seeking to better understand carbon sequestration and opportunities on their land.

Delivering Industry Knowledge

“As mineral managers, we negotiate oil and gas leases for clients in an effort to achieve top market prices for lease bonus payments and royalty percentages, as well as ensuring that the leases include provisions to protect the client’s land and mineral right,” said Collier.

Collier and his team leverage their experience in the oil and gas industry by applying the same principals and skillset to negotiating CCUS contracts for clients.

“We based our contracts and the structure of monetary compensation on the same principals used in drafting and negotiating oil and gas contracts,” Collier noted.

Regions entered this space in 2021, closing the first deal in late 2022. That project could see its first carbon injection as soon as 2027.

“It takes time – up to several years – to obtain permitting and get everything in place to begin the carbon injection process,” noted Collier. “From a financial perspective, we’re able to structure annual rental payments until the injection process begins, then defining the amounts of payments going forward based on volume of CO2 injected.”

The interest has grown significantly, and the team is currently working across the wealth management and commercial banking sectors to help connect landowners and business operators to reap the benefits of carbon sequestration.

Carbon Capture Gaining Traction on the Gulf Coast

Louisiana State University is getting in on the action around carbon capture. The U.S. Department of Energy has awarded nearly $5 million to an LSU-led consortium to study the feasibility of building a carbon capture hub in Louisiana.

The school began offering a first-of-its-kind concentration in carbon capture, utilization and storage through its Craft and Hawkins Department of Petroleum Engineering in the fall of 2022.

“This is a new industry that is seeing a lot of traction on the Gulf Coast in recent years,” said Stephanie Coln, Private Wealth Management leader for Regions in Louisiana, who recently worked with a client who owns several large tracts of land. “Through our extensive networks, we had a company very interested in the carbon capture process and were able to negotiate financial terms benefitting both the client and the company.”

An ideal location for carbon sequestration is large, contiguous acreage, typically 2,000-plus, within close proximately to CO2 emitters or existing CO2 pipelines. It’s also beneficial if little or no existing active oil and gas wells or leases are present.

“With these projects, the client retains full control over the decision making throughout the process,” noted Collier, adding that Regions’ role is to market the client’s land to CCUS operators and negotiate all terms and provisions of CCUS contracts.

Carbon Sequestration: Exploring the Tax Benefits

There is a tax benefit to carbon sequestration, as well.

The U.S. federal government provides tax credits to taxpayers that capture carbon dioxide in qualified processes, in accordance with rules laid out in Section 45Q of the Internal Revenue Code.

The 45Q tax credit has been expanded a number of times since it was initially established in 2008, with the primary purpose to incentivize investment in carbon capture, utilization and storage projects. In 2020 and early 2021, the U.S. Treasury Department and the IRS published guidance that addressed several open questions about how the credit works, providing additional confidence for investment in CCUS.

This information is general in nature and is not intended to be legal, tax, or financial advice. Consult an appropriate professional concerning your specific situation and for current tax rules. The purchase of an insurance product through Regions Bank or any of its affiliates is completely optional. Regions Bank may not condition an extension of credit or the provision of other services on either: 1) the purchase of an insurance product through Regions Bank or any of its affiliates, or 2) an agreement not to obtain or a prohibition on obtaining, an insurance product from an entity not affiliated with Regions Bank.

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Trust and investment management services are offered through Regions Private Wealth Management, a business unit of Regions Bank. Investment advisory services are offered through Regions Investment Management, Inc. “RIM”. RIM is a Registered Investment Adviser and wholly owned subsidiary of Regions Bank, which in turn, is a wholly owned subsidiary of Regions Financial Corporation.