45Q: Toward a Stronger Federal Carbon Capture Tax Credit

Abstract

This article explores how 45Q in the U.S. tax code incentivized carbon capture, utilization, and storage (CCS, or CCUS) before President Biden signed the 2022 Inflation Reduction Act (IRA) into law. That legislation increased dollar values, added direct pay, and otherwise enhanced 45Q. The article first explains CCS mechanics and then explores 45Q’s history. Next, it lays out which industries (oil, gas, ethanol, etc.) have claimed the credit, and in what contexts (enhanced oil recovery, saline storage, etc.). Finally, it details updates the IRA adopted and weighs proposals to improve regulatory transparency in environmental monitoring, reporting, and verification.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 See 26 U.S.C. § 45Q (credit for carbon oxide sequestration). https://www.law.cornell.edu/uscode/text/26/45Q.

2 Jones, A., and A. Lawson. 2021. Carbon Capture and Sequestration (CCS) in the United States. Congressional Research Service. https://sgp.fas.org/crs/misc/R44902.pdf. Current facilities and those under development in the U.S. are in five sectors: “chemical production, hydrogen production, fertilizer production, natural gas processing, and power generation.” Id. at 14.

3 See, e.g., Douglas, L. 2022. Biden Administration Sees Carbon Capture as Key Tool in Climate Fight. Reuters, February 7. https://www.reuters.com/article/usa-carbon-capture-idCNL1N2UB1N6 (reporting that President Joe Biden’s “proposed budget reconciliation plan, Build Back Better, would hike the [45Q tax] credit amount to $85 for sequestration and $60 for” enhanced oil recovery, as part of a plan “to achieve net-zero greenhouse gas emissions by 2050 to fight climate change, … [which] will require not just steep cuts in carbon output but also wider use of negative emissions technologies that can clear up the emissions that remain.”).

4 Cama, T. 2018. White House Jumps into Fight over Energy Subsidies. The Hill, December 4. https://thehill.com/policy/energy-environment/419736-white-house-jumps-into-fight-over-energy-subsidies/ (reporting that “[s]upport for [wind, solar, and electric car] tax incentives generally falls along party lines, with Democrats united in backing them and most Republicans in opposition.”).

5 Thompson, J. 2021. Bipartisan Support for Carbon Capture Jobs. Clean Air Task Force. https://www.catf.us/2021/04/bipartisan-support-for-carbon-capture-jobs/ (explaining that both “Democrats and Republicans support new efforts to enhance tax credits that reward companies for capturing CO₂ and storing it underground. These credits, known as 45Q, are the primary federal policy driver for CCS.”).

6 See, e.g., Office of Sen. Tina Smith. 2021. Press Release: U.S. Senators Smith, Capito Lead Bipartisan Senate Effort to Reduce Greenhouse Emissions with Carbon Capture Legislation, March 25. https://www.smith.senate.gov/us-senators-smith-capito-lead-bipartisan-senate-effort-reduce-greenhouse-emissions-carbon-capture (quoting Republican Sen. Shelley Moore Capito of West Virginia as saying enhanced carbon capture tax credits would “help us protect our coal and natural gas industries” and Smith saying “what’s good for our environment and good for our economy is bipartisan, as it should be.”).

7 See U.S. Department of Energy. 2022. Carbon Capture, Transport, & Storage: Supply Chain Deep Dive Assessment. U.S. Department of Energy. https://www.energy.gov/sites/default/files/2022-02/Carbon%20Capture%20Supply%20Chain%20Report%20-%20Final.pdf.

8 Jaruzel, M. 2021. Policy Support Drives Direct Air Capture Forward. Clean Air Task Force. https://www.catf.us/2021/11/policy-support-drives-direct-air-capture-forward/ (explaining the importance of direct-air capture, or DAC: “IEA models show that in order to reach net-zero emissions, we need 630 million tons per year of CO₂ sequestered from DAC, globally, by 2050. DAC is a useful technology to have in the climate toolbox because it can draw down legacy emissions while also being used to mitigate sectors such as aviation, which are particularly difficulty to decarbonize.”).

9 Id. (explaining that job creation will be “including, but not limited to, the fields of raw materials (… steel, cement, etc.), engineering and design (design of carbon capture, pipelines, injection sites, … etc.), construction (retrofitting, pipeline development, injection sites, trucking), and operation and maintenance (O&M).”).

10 See, e.g., Office of Rep. David McKinley. 2020. Press Release: McKinley: “Developing Carbon Capture Is Paramount,” December 15. https://mckinley.house.gov/news/documentsingle.aspx?DocumentID=2951 (quoting McKinley as saying the “ultimate goal becomes is to export that technology to other nations, specifically China and India. At the end of the day, even if America totally stopped emitting carbon, with the amount being produced by China and India alone we would still face wildfires on the West Coast, droughts in the Midwest, and hurricanes on the East Coast.”).

11 International Energy Agency. 2020. Energy Technology Perspectives: Special Report on Carbon Capture Utilization and Storage. https://iea.blob.core.windows.net/assets/181b48b4-323f-454d-96fb-0bb1889d96a9/CCUS_in_clean_energy_transitions.pdf.

12 Jones and Lawson, supra note 2, at 2.

13 Id. at 4, note 9 (explaining that “[i]njecting CO₂ into an oil reservoir often increases or enhances production by lowering the viscosity of the oil, which allows it to be pumped more easily from the formation. The process is sometimes referred to as tertiary recovery or enhanced oil recovery (EOR).”).

14 Id. at 12.

15 Gonzales, V., A. Krupnick, and L. Dunlap. 2020, updated 2022. Carbon Capture and Storage 101. Resources for the Future. https://www.rff.org/publications/explainers/carbon-capture-and-storage-101/.

16 Jones and Lawson, supra note 2, at 2.

17 Id.

18 Id.

19 Global CCS Institute. 2015. Fact Sheet: Capturing CO₂. https://www.globalccsinstitute.com/archive/hub/publications/191018/fact-sheet-capturing-co2.pdf.

20 Id.

21 Id.

22 Id. (explaining that “[p]re-combustion capture is used in industrial processes (such as natural gas processing) while its application in power generation will be via new build projects (such as the Kemper County Energy Facility now under construction.”).

23 Gonzales, supra note 15.

24 Id.

25 Fact Sheet: Capturing CO₂, supra note 19 (adding that “in an absorption-based approach, once absorbed by the solvent, the CO₂ is released by heating to form a high purity CO₂ stream.”).

26 Id.

27 Id.

28 Gonzales, supra note 15.

29 Jones, A., and M. F. Sherlock. 2021. The Tax Credit for Carbon Sequestration (Section 45Q). Congressional Research Service. https://sgp.fas.org/crs/misc/IF11455.pdf.

30 Jones and Lawson, supra note 2, at 8.

31 Id.

32 Id.

33 Id.

34 Global CCS Institute. 2018. Fact Sheet: Transporting CO₂. https://www.globalccsinstitute.com/wp-content/uploads/2018/12/Global-CCS-Institute-Fact-Sheet_Transporting-CO2-1.pdf.

35 Id.

36 Id.

37 Id. (explaining that [w]hile hubs, clusters, and networks are terms used somewhat interchangeably, their use to describe projects highlights subtle differences”: To wit, “CO₂ cluster may refer to a grouping of individual CO₂ sources, or to storage sites such as multiple fields within a region,” while a hub “collects CO₂ from various emitters and redistributes it to single or multiple storage locations” and a network “is an expandable collection and transportation infrastructure providing access for multiple emitters.”).

38 Jones and Lawson, supra note 2, at 9.

39 National Energy Technology Laboratory. Carbon Storage FAQs. Accessed April 13, 2022. https://netl.doe.gov/carbon-management/carbon-storage/faqs/carbon-storage-faqs.

40 Id.

41 Id.

42 Special Report on Carbon Capture Utilization and Storage, supra note 11, at 112.

43 Id.

44 Id. at 114.

45 Beck, L. 2020. The US Section 45Q Tax Credit for Carbon Oxide Sequestration: An Update. Global CCS Institute. https://www.globalccsinstitute.com/wp-content/uploads/2020/04/45Q_Brief_in_template_LLB.pdf.

46 Id. at 2. Relying on tax credits as energy incentives can create opportunities and markets: “With the ability to claim tax credits depending on a clean energy developer’s being profitable enough to owe taxes, a market for financing clean energy has developed through these tax credits. Such tax equity partnerships allow a developer who is unable to claim the credits to secure financing by partnering with an investor—a tax equity investor.” Id.

47 Id.

48 Jones and Sherlock, supra note 29, at 1.

49 Beck, supra note 45, at 2.

50 Id.

51 Jones and Sherlock, supra note 29, at 2 (adding that “[i]n June 2020 (the last data available), the Internal Revenue Service (IRS) reported that the credit had been claimed for approximately 72 million metric tons, or 96 percent of the limit.”).

52 Rodgers, M., and B. Dubov. 2021. Carbon Capture and Storage: The Legal and Regulatory Context. White & Case. https://www.whitecase.com/publications/insight/carbon-capture/us-tax-credit-encourages-investment.

53 Martin, E., and M. Mills. 2022. Net-Zero Without Carbon Sequestration Is ‘Virtually Impossible’; Yet Site Acquisition and Permitting Hurdles Hinder Implementation. Power, February 1. https://www.powermag.com/net-zero-without-carbon-sequestration-is-virtually-impossible-yet-site-acquisition-and-permitting-hurdles-hinder-implementation/.

54 Bomgardner, M. 2020. 45Q, the Tax Credit that’s Luring U.S. Companies to Capture CO₂. Chemical and Engineering News, February 23. https://cen.acs.org/environment/greenhouse-gases/45Q-tax-credit-s-luring/98/i8 (reporting that industry insiders say “the tax credit will spur investment in pipelines to take CO₂ from ethanol plants and use it for EOR, in synthetic fuel manufacturing, or to harden concrete blocks,” and that “ammonia producers and natural gas processors [who] obtain relatively pure CO₂ as a by-product” could use the credit similarly).

55 Jones and Lawson, supra note 2, at 21. See also Doniger, D., and D. Droitsch. 2018. Capturing Carbon Pollution While Moving Beyond Fossil Fuels. NRDC Expert Blog, March 1. https://www.nrdc.org/experts/david-doniger/capturing-carbon-pollution-while-moving-beyond-fossil-fuels (“We don’t support subsidies for fossil fuel production, including subsidies for enhanced oil recovery, that would conflict with the need to reduce our dependence on those fuels. We will work to ensure that the new tax credits are used as much as possible for CCS projects that bury carbon dioxide in deep geologic formations without producing oil, or put it into materials like cement that lock it up for good.”).

56 Hulac, B. 2020. Treasury IG: A Decade of Carbon-Capture Tax Credits Were Faulty. Roll Call, April 30. https://rollcall.com/2020/04/30/treasury-ig-a-decade-of-carbon-capture-tax-credits-were-faulty/ (reporting that of “the 10 taxpayers that collected almost all of the credits, three followed EPA rules, three are under audit and four were out of compliance, according to the report. The IRS took action against those four and it withheld $531 million of the roughly $900 million in credits after it reviewed tax records.”).

57 Id.

58 Rodgers and Dubov, supra note 52.

59 Id.

60 Jones and Sherlock, supra note 29, at 1, 2.

61 Rodgers and Dubov, supra note 52 (“Now, a taxpayer owning a project that captures and sequesters, for example, at least 100,000 (in the case of a direct air-capture facility) or 500,000 (in the case of an electricity generating facility) metric tons of qualified carbon oxide in a taxable year generally will be entitled to receive Section 45Q credits for the 12-year period beginning when the carbon capture equipment is placed in service.”).

62 Id.

63 See Gomez, A., et al. 2020. Guidance on Carbon Capture and Sequestration Tax Credit Provides Clarity for Developers and Investors. Skadden, Arps, Slate, Meagher & Flom LLP. https://www.skadden.com/insights/publications/2020/06/guidance-on-carbon-capture-and-sequestration (“The amount of the Section 45Q Credit depends on the year in which qualified carbon oxide is captured and sequestered, and whether such qualified carbon oxide is disposed, injected or utilized. For each metric ton of qualified carbon oxide that is disposed, the Section 45Q Credit is $31.77 in 2020, and increases linearly each year to $50 in 2026; thereafter, the $50 credit amount is adjusted for inflation. For each metric ton of qualified carbon oxide that is injected or utilized, the Section 45Q Credit is $20.22 in 2020, and increases linearly each year to $35 in 2026; thereafter, the $35 credit amount is adjusted for inflation.”).

64 Rodgers and Dubov, supra note 52.

65 Beck, supra note 45, at 3 (“Currently, breakeven cost estimates range between $5 t/CO₂ for natural-gas processing CCS facilities to $30t/CO₂ for hydrogen production and coal-to-chemicals processing, as well as $60 t/CO₂ for power plants equipped with CCS.”).

66 Jones and Sherlock, supra note 29, at 1.

67 Id.

68 Id.

69 Id. at 2.

70 Bray, R., L. Crouch, and T. Lowther. 2021. IRS Issues Final Regulations on Section 45Q Carbon Capture Credits, Shearman & Sterling. https://www.shearman.com/perspectives/2021/03/irs-issues-final-regulations-on-section-45q-carbon-capture-credits.

71 Morgan, L., and C. Loyack. 2021. Final Carbon Sequestration Tax Credit Regulations Shorten Recapture Period, Provide Guidance on “Utilization.” Kirkland & Ellis Energy Blog, January 12. https://www.kirkland.com/publications/blog-post/2021/01/section-45q-final-regulations.

72 Bray, Crouch, and Lowther, supra note 69.

73 Id.

74 Latham & Watkins. 2021. Client Alert: Treasury Finalizes Carbon Capture Tax Credit Regulations. https://www.lw.com/thoughtLeadership/Treasury-Finalizes-Carbon-Capture-Tax-Credit-Regulations.

75 Id.

76 Id. at 8 (explaining that EPA’s reporting requirements are set forth at 40 CFR part 98).

77 Id.

78 Id.

79 Id.

80 Id. These standards are under CSA/ANSI ISO 27916:2019, which “was developed for the purpose of quantifying volumes of carbon dioxide sequestered through EOR. Like Subpart RR, ISO 27916:2019 also employs mass balance accounting, and includes requirements for annual reporting, recordkeeping, monitoring, and leak prevention.”

81 Id.

82 Id.

83 Teaff, B., and V. Ozimek. 2022. Certain CCUS Projects Now Eligible for Financing with Tax-Exempt Bonds. Bracewell. https://bracewell.com/insights/certain-ccus-projects-now-eligible-financing-tax-exempt-bonds.

84 Id.

85 Global CCS Institute. Facilities Database. Accessed April 18, 2022. https://co2re.co/FacilityData. Commercial CCS facilities capture and transport CO₂ “for permanent storage as part of an ongoing commercial operation,” generally has an economic life “similar to the host facility whose CO₂” it captures, and “must support a commercial return while operating and meet a regulatory requirement.” Id. Meanwhile, a pilot or demonstration facility captures CO₂ for “testing, developing or demonstrating CCS technologies and processes,” and may or may not permanently store the captured carbon. Further, a pilot project has a “generally short life compared to commercial facilities” and is ”not expected to support a commercial return during operation.” Id.

86 Turan, G., and A. Zapantis. 2021. Global Status of CCS 2021. Global CCS Institute. https://www.globalccsinstitute.com/wp-content/uploads/2021/11/Global-Status-of-CCS-2021-Global-CCS-Institute-1121.pdf.

87 See Facilities Database, supra note 84.

88 Id.

89 Valdmanis, R. 2021. Proposed U.S. Carbon Capture Credit Hike Cheers Industry, Worries Greens. Reuters, November 1. https://www.reuters.com/world/us/proposed-us-carbon-capture-credit-hike-cheers-industry-worries-greens-2021-11-01/. However, that number does not include the “additional CO₂ [that] was injected underground for so-called enhanced oil recovery” under the credit. Id.

90 Facilities Database, supra note 84.

91 Jones and Sherlock, supra note 29, at 2.

92 Id. While CRS projects “[i]n the near term, most CCS projects will likely continue to capture and inject CO₂ for EOR, in part to generate revenue and offset the costs of capture,” even that is not always economical:” For example, Texas’s Petra Nova facility “was the first industrial-scale coal-fired electricity generating plant with a CCS system in the United States and used the captured CO₂ for EOR,” but it “suspended CCS operations in 2020 … citing economic challenges.” Id.

93 Clean Air Task Force. 2022. Overview of U.S. Carbon Management Projects. https://cdn.catf.us/wp-content/uploads/2022/01/22135134/overview-carbon-management-projects.pdf.

94 Id.

95 Jones and Sherlock, supra note 29, at 2.

96 This is a logical result of the 45Q tax credit as it exists post-2018: The tax credits are set to reach $50 for storage and $35 for EOR and other uses by 2026, making a stronger economic case for storage, particularly in an era with volatile and uncertain oil markets for those contemplating EOR. Saline storage, on the other hand, is more straightforward economic proposition.

97 Overview of U.S. Carbon Management Projects, supra note 92.

98 Id.

99 Flowers, S. 2022. The Coming Carbon Capture and Storage Boom – We Have Lift Off. Wood Mackenzie: The Edge. https://www.woodmac.com/news/the-edge/the-coming-carbon-capture-and-storage-boom–we-have-lift-off/.

100 See, e.g., Harder, A. 2018. Big Oil Quietly Pushes Change to New Carbon Law. Axios, May 21. https://www.axios.com/big-oil-quietly-pushes-change-to-new-carbon-law-4239bfdb-b771-40bc-a200-c6c7899521a2.html (reporting that “[s]ome of America’s biggest energy companies are lobbying Washington to change—critics say weaken—oversight of a federal tax credit going to facilities capturing carbon emissions … [by] pushing legislation allowing companies to receive the tax credit without submitting a monitoring plan to the Environmental Protection Agency, which would ensure the captured carbon stays underground after extracting oil.”).

101 Letter from Clean Air Task Force to Secretary Mnuchin and Commissioner Rettig, Re: Notice of Proposed Rulemaking on Credit for Carbon Oxide Sequestration. 2020. Docket No. REG–112339–19, August 3. https://cdn.catf.us/wp-content/uploads/2016/02/21092759/CATF-Comments.pdf. The groups urged “IRS to determine the extent to which it may encourage or mandate public disclosure of information necessary to verify the integrity of geologic storage. For instance, under Section 45Q(f)(2), IRS has authority to ‘establish regulations for determining adequate security measures for the geological storage of qualified carbon oxide’ in consultation with EPA. Given the importance of public disclosure for accountability and integrity of the program, that authority may permit public disclosure of certain information.” Id.

102 Beck, L. 2021. CATF Statement on final 45Q Tax Credit Guidance. Clean Air Task Force. https://www.catf.us/2021/01/catf-statement-on-final-45q-tax-credit-guidance/.

103 Letter from Sen. Robert Menendez to J. Russell George, Treasury Inspector General for Tax Administration. November 19, 2019. https://policyintegrity.org/documents/Menendez_45Q_Letter_Nov2019.pdf (writing “to raise a number of concerns about the implementation of the tax credit for carbon oxide sequestration,” including that public “data suggest that the vast majority of the 45Q tax credits claimed have come absent the required monitoring, reporting, and verification systems that ensure the safe disposal of captured carbon, in clear contravention of current law and guidance.”).

104 See Hulac, supra note 56.

105 Office of Senator Bob Menendez. 2020. Press Release: Menendez Releases Inspector General Investigation Finding Fossil Fuel Companies Improperly Claimed Nearly $1B in Clean Air Tax Credits. https://www.menendez.senate.gov/newsroom/press/menendez-releases-inspector-general-investigation-finding-fossil-fuel-companies-improperly-claimed-nearly-1b-in-clean-air-tax-credits.

106 Waltzer, K. 2020. Do It Right – the IRS Shows Why It Pays to Comply with Storage Standards. Clean Air Task Force. https://www.catf.us/2020/04/do-it-right/.

107 Id.

108 See Final Decisions, Subpart RR—Geologic Sequestration of Carbon Dioxide, Greenhouse Gas Reporting Program, EPA. Accessed April 18, 2022. https://www.epa.gov/ghgreporting/subpart-rr-geologic-sequestration-carbon-dioxide.

109 See, e.g., Lucid Energy Delaware, LLC. 2021. Monitoring, Reporting and Verification Plan for Red Hills AGI #1 and AGI #2. https://www.epa.gov/system/files/documents/2021-12/rhgpp_mrvplan.pdf (explaining that “Lucid has chosen to submit this Monitoring, Reporting, and Verification (MRV) plan to EPA for approval according to 40 CFR 98.440 (c)(1), Subpart RR of the Greenhouse Gas Reporting Program (GHGRP) for the purpose of qualifying for the tax credit in section 45Q of the federal Internal Revenue Code. Lucid intends to inject CO₂ for another 30 years.”). With EPA approval announced in January, the project is set to be “the largest carbon capture and storage project in the Permian Basin.” McEwen, M. 2022. EPA Approves Lucid’s Plan for Major Permian CCS Project. Midland Rep.-Telegram, January 15. https://www.mrt.com/business/energy/article/EPA-approves-Lucid-s-plan-for-major-Permian-CCS-16772892.php (reporting that with its MRV plan approved, “the company is awaiting Internal Revenue Service approval of its 45Q election forms to proceed with the project.”).

110 See, e.g., Petra Nova. 2021. West Ranch Oil Field CO₂ Monitoring, Reporting and Verification (MRV) Plan. https://www.epa.gov/system/files/documents/2021-09/wru_mrvplan.pdf (no mention of 45Q claims). Petra Nova, as mentioned in note 91, supra, “made headlines recently when it stopped capturing CO₂” in 2020, with a company spokesman reportedly saying: “The carbon capture facility has been placed in a mothball status to allow it to be brought back online when economics improve.” Nagabhushan, D., and L. Beck. 2020. Petra Nova, De-risking Carbon Capture Business Models with Saline Storage. Clean Air Task Force. https://www.catf.us/2020/08/petra-nova-de-risking-carbon-capture-business-models-with-saline-storage/. Critically, however, “Petra Nova appears not to have claimed the 45Q tax credit [as of 2020]. In 2019, NRG stated that they were evaluating and optimizing for tax incentives. So far, NRG has not submitted an MRV plan.” Id.

111 Perdure Petroleum, LLC. 2021. Farnsworth Unit, Texas (FWU) Monitoring, Reporting, and Verification Plan. https://www.epa.gov/system/files/documents/2021-07/fwu_mrvplan.pdf. Perdure “operates the Farnsworth Unit (FWU) located in Ochiltree County, Texas[,] for the primary purpose of enhanced oil recovery (EOR) using carbon dioxide (CO₂) with a subsidiary or ancillary purpose of geologic sequestration of CO₂ in a subsurface geologic formation.” Id. It anticipates injection 9.5 million metric tons of CO₂ through 2032. Id.

112 Lucid Energy Delaware MRV, supra note 108, at 60 (explaining that “[s]ince Lucid does not actively produce oil or natural gas or any other fluid at its Red Hills Gas Plant, Equation RR-12 will be used to calculate the total annual CO₂ mass sequestered in subsurface geologic formations.”). Granted, submission of an MRV for a storage well such as this is to be expected: an MRV is required anyway for such a Class VI storage injection well, whereas for EOR operators an MRV report through Subpart RR is merely an option to complete in lieu of the ISO route. Still, the existence of recent MRVs on file with EPA for both storage and beneficial use operators shows compliance with the RR reporting regime is not so cumbersome it is stopping operators from pursuing new projects in either area.

113 U.S. Department of Treasury Office of Tax Analysis. 2021. Tax Expenditures: FY2023. https://home.treasury.gov/system/files/131/Tax-Expenditures-FY2023.pdf.

114 Id. at 22.

115 Id.

116 Id.

117 Id. at 32.

118 Id.

119 Beck, supra note 101 (explaining “CATF has supported establishing an alternative compliance pathway for CO₂-EOR via the ISO standard. However, to promote transparency and protect the integrity of the credit, CATF has also called for establishing procedures for public reporting of the amount of carbon oxide sequestered using the ISO standard. The IRS has rejected this suggestion in the final guidance. This underscores the importance for EPA to amend the Greenhouse Gas Reporting Program to establish a transparent reporting pathway for projects that opt–in to the ISO standard.”).

120 Admittedly, new statutory authorization might be required for further disclosure requirements in future regulations: “Treasury explained in the preamble to the proposed regulations that while Treasury appreciates the importance of shared and open information in this context and encourages transparency, Congressional action would be required to mandate this kind of disclosure. The preamble explains that there is no statutory requirement in section 45Q for taxpayers, federal agencies, or industry groups to publicly display this information or otherwise make it available…. Treasury itself is limited in what it can disclose because of the rules prohibiting the public disclosure of taxpayer information under section 6103.” Johnston, H., L. M. Zarlenga, and J. Cobb. 2020. Government Issues Much-Anticipated Guidance on the Carbon Sequestration Credit. Steptoe. https://www.steptoe.com/en/news-publications/government-issues-much-anticipated-guidance-on-the-carbon-sequestration-credit.html.

121 This could be key not just in guaranteeing real emissions reductions, but also in maintaining public support. See, e.g., Carbon Capture Coalition. 2020. Press Release: Coalition Welcomes IRS Inspector General Report, Calls for Agency to Follow Coalition Recommendations to Safeguard Integrity of New 45Q Tax Credit. https://carboncapturecoalition.org/coalition-welcomes-irs-inspector-general-report-calls-for-agency-to-follow-coalition-recommendations-to-safeguard-integrity-of-new-45q-tax-credit/ (quoting Jason Freed, spokesperson for centrist think tank Third Way, as saying: “Unless the monitoring, reporting, and verification process of 45Q is trustworthy and accurate, as intended in the law, the program will be in doubt, and the nation’s taxpayers will lose, and our progress on climate will suffer. Third Way urges the IRS to rigorously enforce accountability and transparency in 45Q oversight to ensure that taxpayer dollars are used fairly, and the U.S. is put on the fastest, fairest path to net zero emissions by 2050.”).

122 The Clean Air Task Force and others—Shell, the Nature Conservancy, etc.—made similar arguments in comments on Treasury’s proposed regulations. See Carbon Utilization Research Council et al. 2020. Letter to IRS Re: Comments on Proposed Regulations for IRC § 45Q at 3. https://cdn.catf.us/wp-content/uploads/2016/02/21092757/Recommendations-of-the-Multiparty-Working-Group.pdf (explaining “we are concerned that the ANSI/ISO standard itself does not contain the necessary provisions for ensuring public disclosure of required information upon which the taxpayer bases its demonstration of secure geologic storage. … As discussed in the preamble of the proposed rulemaking, the absence of public disclosure is further complicated by the fact that existing federal laws limit what the IRS may disclose to the public in relation to any information that it receives from taxpayers to document their claim for section 45Q tax credits. As a result of this limitation, the IRS has not proposed to establish any requirements for the public disclosure of information supporting their claim for section 45Q tax credits. Such an outcome raises major policy concerns. In particular, it results in the failure to make available to the public key relevant data that is necessary to maintain the public’s confidence in and integrity of the section 45Q tax credit program that protects confidential business information, such as estimated oil reserves. We believe providing this transparency is critically important to instill confidence in taxpayers that we have achieved the safe and secure geological storage for which we are claiming the tax credit.”).

123 Fact Sheet: Carbon Capture Provisions in the Inflation Reduction Act of 2022 at 2, Clean Air Task Force (Aug. 19, 2022), https://cdn.catf.us/wp-content/uploads/2022/08/19102026/carbon-capture-provisions-ira.pdf.

124 See Ochu, E. 2021. Proposed 45Q Tax Credit Reform Could Give a Big Boost to Carbon Capture Projects. Columbia Climate School: State of the Planet, May 6. https://news.climate.columbia.edu/2021/05/06/proposed-45q-tax-credit-reform-boost-carbon-capture-projects/.

125 Murphy, B. 2022. Tax Equity in a Direct-Pay World. Ernst & Young. https://www.ey.com/en_us/power-utilities/tax-equity-in-a-direct-pay-world (observing that, even if enacted to support CCS, wind, solar, and other energy technologies, “it’s not clear that direct pay will replace tax equity financing; rather, it may serve as an additional tool for various developers and provide added optionality for accelerated deployment of capital into renewable energy. Direct pay has its own specific array of potential challenges and limitations: tax depreciation is not monetized, … there are substantial domestic content requirements, and so on. That said, the optionality that direct pay introduces for renewable energy developers will likely contribute to the accelerated deployment of nascent technologies and the installed base of low-carbon technologies on the nation’s electrical grid.”).

126 Ochu, supra note 122.

127 See Valdmanis, supra note 88.

128 See Clean Air Task Force, supra note 123.

129 Id. What’s more, Clean Air Task Force spokesperson Lee Beck said the 45Q “provisions will not only enable decarbonization of domestic industries, but can also multiply emissions reductions abroad.” Id.

130 See Clean Air Task Force at 1, supra note 123.

131 Id.

132 Id.

133 Id.

134 See Samji, O., et al. 2022. Inflation Reduction Act: Key Green and Blue Hydrogen CCUS Provisions. Shearman & Sterling. https://www.shearman.com/en/perspectives/2022/08/inflation-reduction-act-key-green-and-blue-hydrogen-and-ccus-provisions.

135 Id. at 2.

136 Id.

137 Id.

138 Id.

139 Id.

140 Sobczyk, N. GOP, Eyeing Hill Takeover, Mulls Energy and Climate Agenda. E&E Daily, January 21. https://www.eenews.net/articles/gop-eyeing-hill-takeover-mulls-energy-and-climate-agenda/.

141 Id.

142 Martin-Roberts, E., et al. 2021. Carbon Capture and Storage at the End of a Lost Decade. One Earth 4: 1569, 1570. https://www.sciencedirect.com/science/article/pii/S2590332221005418.

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Jared Gilmour

Jared Gilmour graduated in 2023 with a J.D. from Columbia Law School and a master’s in law from Sciences Po in Paris. Before law school, he earned a bachelor’s degree in journalism from Northwestern University and worked as a news reporter and U.S. Senate aide.