Overview
Litigation
Santos Ltd. Of Australia has been sued by activists claiming that carbon capture and sequestration (CCS) credits and use of blue hydrogen amount to greenwashing and fail to properly account for carbon reductions. The Australasian Centre for Corporate Responsibility (ACCR) alleges that proposals to reduce scope 1 and 2 pollution by 30% by 2030 "lack sufficient details to be put into the market", leading to misleading or deceptive conduct relative to its clean energy plans and 'net zero by 2040' commitment in its annual report. The litigation is remarkable as an assault on the viability for CCS in the Australian markets, while much of the rest of the world is moving forward with CCS as a means of addressing global climate change. Santos is working on a $220 million carbon capture and storage (CCS) project at Moomba in South Australia's far north and is expected to make a final investment decision on if it will go ahead with the world's largest CCS project, off the NT coast, in 2023.
Regulatory Oversight
Meanwhile, in the US, focused attention by regulators and US lawmakers on carbon credits and clean energy highlight new interest in accounting standards and regulatory treatment of carbon credits. On August 30, 2022, Congressional lawmakers wrote to the General Accounting Office to request coordination of government agencies in creating transparency and standards in the voluntary carbon offset markets, recognizing the "dramatic increase in demand for voluntary action and private voluntary investments in the natural carbon offsets market."
The Financial Accounting Standards Board is reported to be working to create new standards for companies that account for environmental credits and the offsets that they use, as well as for the companies and utilities that create the credits. Although FASB indicated in May 2022 that it would add the topic to its rulemaking agenda, it has not yet published rules or indicated when it will provide recommendations. FASB is reportedly examining the structures of both voluntary and compliance markets that include cap and trade programs to voluntary markets dealing in credits related to renewable energy, renewable identification number, and carbon offset credits.
Congressional and Administrative Action
Against this backdrop was action by Congress to pass the Inflation Reduction Act which provides a meaningful enhancement to climate programs including extension of the 45Q carbon capture tax credit and passage of a new hydrogen production tax credit that uses carbon intensity as a measure of value for the tax credits. Passage of the bill will create new opportunities for the use of carbon credits in the US and will further establish the use of lifecycle analysis to measure carbon intensity and resultant production tax credit values. US DOE has recently published two Requests for Information (RGIs) indicating its intent to spend $10 billion to deploy carbon reduction and removal technologies and $8 billion to develop hydrogen hubs across the US. The CCS RFI seeks information on direct air capture, point source carbon capture, geologic storage, carbon dioxide infrastructure, and more — all emerging carbon management technology areas where demonstration and deployment has been limited. The hydrogen program, authorized in the Bipartisan Infrastructure Framework, creates a definition for "Clean Hydrogen", defining it as "hydrogen produced with a carbon intensity equal to or less than 2 kilograms of carbon dioxide-equivalent produced at the site of production per kilogram of hydrogen produced (kg CO2e/kg H2)."
