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, 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.

The 45Q tax credit is the portion of the U.S. Internal Revenue Code that incentivizes carbon capture, utilization, and storage (“CCS,” or “CCUS”).1 These technologies capture greenhouse gas emissions largely from coal- and gas-fired power plants and other industrial sources for ultimate sequestration underground, or for use in processes like enhanced oil recovery.2 A relatively recent addition to the tax code, 45Q is a hot topic in political, energy, and environmental circles as an opportunity to keep carbon out of the air and to make fossil fuel combustion less carbon-intensive—and thus less of a concern from an environmental, public health, and climate change perspective.3 Unlike some other tax credits supporting particular energy policies,4 45Q enjoys uniquely broad bipartisan support on Capitol Hill.5 At least in part, that reality stems from the fact that 45Q simultaneously supports continued use of domestic fossil fuels, while also making ongoing hydrocarbon reliance far cleaner.6 Carbon capture could be a vital tool in cutting emissions from hard-to-decarbonize industries (e.g., steel and cement)7 and in sucking past generations’ emissions directly from the air.8 Carbon capture could also be a boon to the U.S. economy, with the federal government estimating “growth of the CCS market is expected to produce between 390,000 and 1.8 million employment opportunities, maintaining and creating well-paying union jobs in various industries.”9 From a global perspective, the tax credit might well spur carbon capture innovation that the U.S. could export to China and other heavy emitters to help cut their emissions and meet planet-wide climate goals.10 And the stakes are high: The International Energy Agency has concluded that, without viable carbon capture technology, “our energy and climate goals will become virtually impossible to reach.”11

This article addresses the successes, complications, and shortcomings of 45Q, with a focus on how the industry used the tax credit before the Inflation Reduction Act (IRA) became law, and on how transparency and other improvements would benefit the public and project sponsors. The article proceeds in four parts: Part I lays out the mechanics of carbon capture, utilization, and storage technology. Part II describes how the 45Q tax credit works and has been updated and implemented over time. Part III analyzes who was capturing carbon and claiming the tax credit in 2022, and who is planning to do so in the future. Finally, Part IV addresses proposals to expand and improve 45Q—analyzing how the IRA has strengthened the tax credit, and how further improving disclosure could be beneficial as well.

I. Background on Carbon Capture

CCS involves injecting carbon oxides into geological formations underground, permanently trapping the compounds and thus reducing net emissions of greenhouse gases into the atmosphere.12 Alternatively, carbon can be injected as part of enhanced oil recovery (EOR) in older oil fields.13 It’s also possible that direct air capture, a still-nascent technology, could one day draw CO2 from the air for geological sequestration or EOR.14 These technologies have great promise because they can capture nearly all the carbon a given facility would otherwise emit; indeed, some carbon capture projects already capture 90 or even 100 percent of facilities’ potential carbon emissions.15 Regardless of where the carbon comes from (the air, a coal power plant, etc.) or where it’s headed (saline storage, enhanced oil recovery, etc.), there are three fundamental steps in any carbon capture system:

(1) capturing and separating CO2 from other gases; (2) compressing and transporting the captured CO2 to the sequestration site; and (3) injecting the CO2 in subsurface geological reservoirs. The most technologically challenging and costly step in the process is the first step, carbon capture. Carbon capture equipment is capital-intensive to build and energy-intensive to operate.16

While “[p]ower plants can supply their own energy to operate CCS equipment, . . . the amount of energy a power plant uses to capture and compress CO2 is that much less electricity the plant can sell to its customers.”17 The amount of energy needed to capture carbon at a given plant is referred to as the “energy penalty” or “parasitic load”—ominous descriptors reflecting the reality that implementing CCS can gobble up roughly 20 percent of a plant’s total capacity.18

In terms of the “challenging and costly” step one, there are three basic capture options: pre-combustion capture, post-combustion capture, or oxyfuel with post-combustion.19 Pre-combustion carbon capture processes turn fuel into a gaseous mix of CO2 and hydrogen, and the hydrogen can then be combusted without emitting CO2.20 Leftover CO2 is compressed in advance of the second and third steps, transport and storage.21 However, pre-combustion capture is not without drawbacks. The “fuel conversion steps required for pre-combustion are more complex than the processes involved in post-combustion, making the technology more difficult to apply to existing power plants.”22 Pre-combustion carbon capture is primarily deployed in industrial processes.23 Post-combustion capture, on the other hand, is how existing power plants generally capture carbon.24 In this process, a liquid solvent or another separation method is used to filter out CO2 after its been burned and turned into exhaust.25 The food and beverage industry relies on CO2 captured using this method.26 And finally, oxyfuel combustion processes use oxygen—rather than regular air—to burn fuel, creating exhaust gas that is primarily water vapor and CO2 that is easily segregated into a highly pure CO2 stream.27 The more concentrated CO2 emissions stream from oxyfuel combustion is also cheaper to capture.28 And while carbon dioxide draws most of the attention, carbon monoxide capture and sequestration is also possible. Congress’s 2018 reform of the tax credit, discussed further in Part II, extended 45Q to cover those carbon oxides, too.29

After capture comes step two, compression and transportation. Purification and compression yields a concentrated stream of CO2 that is set for transport, most commonly by pipeline in the U.S.30 About 5,000 miles of pipeline carry CO2 domestically—most often to oil fields for enhanced oil recovery use.31 Just as in the pipeline shipment of oil or gas, carrying CO2 this way “requires attention to design, monitoring for leaks, and protection against overpressure, especially in populated areas.”32 While marine tankers also carry CO2, limited demand for the gas has meant lack of widespread adoption; still, it may be more feasible and attractive in the future, and such “shipping might be less costly than pipeline transport for distances greater than 1,000 kilometers and for less than a few million tons of CO2 transported per year.”33 However, extensive adoption of other forms of transportation is more difficult to imagine. Indeed, “[g]iven the large quantities of CO2 that would be captured via CCS in the long-term, it is unlikely that truck and rail transport will be significant.”34 In terms of safety, CO2 pipelines and ships are no higher risk than oil and gas infrastructure today.35 In the next three to four decades, roughly 100 times more CO2 transportation infrastructure must be built compared to today’s CO2 pipeline footprint to handle anticipated demand.36 That infrastructure is likely to sprout up in hubs, clusters, or networks that take advantage of economies of scale, along the lines of pipelines today that feed EOR operations in the U.S.’s Permian Basin.37

After capture and transportation comes the third and final step—storage. There are three primary geological formations into which CO2 can be injected and stored: depleted oil and gas reservoirs, deep saline reservoirs, and coal seams that are not mineable.38 CO2 is stored as a “supercritical fluid,” which means it is more than 88 degrees Fahrenheit and under pressure above 72.9 atm, giving it some gas and some liquid qualities.39 A supercritical state is advantageous for storage purposes—it means “the required storage volume is substantially less than if the CO2 were at ‘standard’ (room)-pressure conditions.”40 What’s more, storing the CO2 at depths below roughly 2,600 feet keeps the CO2 at this supercritical state.41 Effectively, deep storage means far more CO2 can be packed into a far smaller area—and, vitally, out of the atmosphere, where it would otherwise further heat the planet.

Once pumped into storage, of course, it’s also key to make sure the carbon stays put. That’s why the CO2 is forced into porous rock reservoirs beneath impermeable layers, which act as a seal to trap CO2 as it tries to drift upward through the rock strata.42

The CO2 is permanently trapped in the reservoir through several mechanisms: structural trapping by the seal, solubility trapping in pore space water, residual trapping in individual or groups of pores, and mineral trapping by reacting with the reservoir rocks to form carbonate minerals.43

Of the total estimated CO2 storage globally, the “vast majority” is in depleted oil and natural gas fields and deep saline formations.44

II. How the 45Q Tax Credit Worked Pre-IRA

According to carbon capture boosters, many consider 45Q the most progressive CCS-specific incentive anywhere in the world.45 And it’s fitting that federal support for carbon capture adoption in the U.S. comes in the form of an Internal Revenue Code section. The U.S. “has a long history of providing energy tax credits to a variety of fuels and production methods,” including the wind Production Tax Credit (PTC) and solar Investment Tax Credit (ITC).46 Indeed, “tax credits have become the preferred incentive structure by the federal government to spur the deployment of and unlock investment in clean energy.”47

The 45Q credit is calculated by the metric ton for qualified CO2 or CO captured and sequestered.48 Carbon suboxide is also covered.49 In 45Q’s initial, 2008 incarnation, the tax credit promised taxpayers $10 per ton of CO2 used in enhanced oil recovery, and twice as much, $20 per ton, for CO2 stored in geological formations.50 But in that earliest version of the credit, there was a strict cap: Taxpayers qualified for 45Q only until it had been claimed for 75 million tons of CO2 overall, across all taxpayers.51 That and other restrictive credit parameters created problems for would-be investors:

As each taxpayer claiming Section 45Q credits was required to capture at least 500,000 metric tons of qualified carbon dioxide in a single taxable year, the [75 million-ton] program limitation was expected to be quickly reached. The relatively low value of the initial Section 45Q credit and the . . . [cap] stalled interest for developing projects to claim the credit. Specifically, the uncertainly with respect to the amount of Section 45Q credits remaining available at any given time for a specific project (out of the limited overall pool of 75 million tons of carbon dioxide from which the credits could be derived) significantly discounted the value taxpayers ascribed to such tax credits.52

Stumbling blocks with the 2008 credit were manifold. Even though the credit as enacted in 2008 was twice as generous for storage as for EOR, “in the decade that followed, Section 45Q tax credits were generated only in connection with enhanced oil recovery . . . .”53 And while gargantuan oil companies like ExxonMobil were able to take advantage of the credit, that was “only at sites that [could] conveniently capture CO2 from natural gas separation plants and pipe it to regional oil producers for EOR.”54 Some environmental groups have opposed the tax credit on the grounds that it extends the lifespan of coal plants and subsidizes continued oil drilling via the EOR provisions.55 Further, a small number of outfits enjoyed nearly all tax credit benefits in the early years: In fact, just 10 companies claimed 99.9% of the $1 billion in 45Q credits claimed between 2010 and 2019, according to a federal report.56 And of those credits claimed, $893 million did not even meet EPA requirements, pointing to serious compliance issues.57

The Bipartisan Budget Act of 2018 sought to address some of those issues, and more. First, the reforms scrapped the 75 million-ton overall cap on credits that taxpayers could claim.58 Instead of a ton-based claim limit, the reforms imposed a start-of-construction deadline (originally Jan. 1, 2024, but extended to Jan. 1, 2026 in 2020 legislation)59 as well as a 12-year claim window once a project is in service.60 For some taxpayers, these reforms also lowered the threshold for the number of tons a taxpayer would need to capture in order to claim the credit in the first place.61 Further, as mentioned above, the 2018 updates extended the credit to carbon monoxide capture.62 And, perhaps most notably, the reforms raised the dollar value of the tax credit itself. Under this reformed 45Q, if a facility captured carbon oxides and injected them into geological storage, credit value would be worth $50 per ton of carbon emissions by 2026.63 For projects that captured and used carbon in EOR or another beneficial uses, the credit was worth a bit less by 2026: $35 per ton of carbon emissions.64 According to one trade group report’s estimations, these numbers were “high enough to be able to incentivize CCS applications in a variety of energy-intensive sectors in industry.”65

Carbon oxides qualified for the credit if they were emissions that would have been released into the atmosphere if not for installation and use of qualifying carbon capture equipment.66 Taxpayers claiming 45Q had to measure emissions at the point of capture and disposal, injection, or use—and repayment of the credit (aptly called “credit recapture”) was required if the credited carbon escapes or is otherwise no longer captured or disposed.67 Another change that the 2018 reforms brought was making those who own capture equipment (and ensure disposal or use) eligible to claim the credit themselves, rather than limiting eligibility to the taxpayer who actually captures and physically or contractually ensures disposal or use.68 This was notable because “allowing owners of carbon capture equipment to claim tax credits instead of the person capturing the CO2 . . . creates flexibility in ownership structures facilitating tax-equity investment.”69

Final U.S. Department of Treasury and IRS regulations, issued in January 2021, cleared up several then-outstanding issues in 45Q implementation. Experts explained that the regulations “aim[ed] to alleviate some of the uncertainty previously faced by developers and should attract more widespread attention and investor participation.”70 One issue of clarification related to rules for recapture of the credit, in the event carbon was released after the credit was claimed. Most significantly, while proposed regulations floated a five-year window for recapture of credits, industry evidence suggesting leak risk is highest in the year following injection led to adoption of a shorter three-year window for credit recapture in the final rule.71 The regulations also clarified credit eligibility and transfer. For instance, if multiple taxpayers owned different parts of a carbon capture system (or an undivided interest in the same CCS equipment) only one of those taxpayers could make a 45Q claim.72 And a taxpayer authorized to claim 45Q could transfer the credit to another taxpayer via a contractual agreement to dispose of or use the carbon, though subsequent transfers (e.g., to still other subcontractors) were not allowed.73

Another key clarification in the January 2021 final regulations was around how taxpayers report greenhouse gas sequestration and demonstrate secure storage to claim the credit—a vital question from a compliance perspective.74 Here, the critical distinction for taxpayers was whether the carbon was being injected for beneficial use, or simply being disposed via storage. Regardless of 45Q requirements, independent EPA rules govern these sorts of injection wells: On the one hand, EOR injection wells require a commonly-used Class II Underground Injection Control (UIC) permit through the Safe Drinking Water Act, while on the other hand, geological storage injection requires a more stringent Class VI permit.75 Thus, both EOR operators and underground storage tax credit claimants would be subject to EPA’s greenhouse gas reporting regime even without 45Q on the books.76 But a Class II permit holder performing EOR is subject to the more lax Subpart UU, “which requires only reporting of basic information on carbon dioxide received for injection.”77 Meanwhile, Class VI permit holders storing carbon must comply with Subpart RR, which involves developing a somewhat byzantine Monitoring, Reporting, and Verification (MRV) plan that provides—predictably—“for reporting, monitoring, and verification of the amount of carbon dioxide sequestered using a mass balance approach.”78 Those MRV plans must also highlight monitoring areas, point out possible surface leakage pathways, strategize about finding and measuring leaks, establish baselines for leakage monitoring, and more.79

The final 2021 Treasury regulations sought to provide some compliance flexibility, particularly for EOR, while still ensuring a level of disclosure. The rules required 45Q-claiming taxpayers to either have (1) an EPA-approved MRV plan (which holders of the more stringent Class VI permits already have, by virtue of storage injection requirements), or (2) prove secure geological storage by complying with standards issued by the International Organization for Standardization (ISO) for CO2 sequestration.80 The critical difference between these choices, relevant for EOR operators, was disclosure: Subpart RR is publicly disclosed, so taxpayers who go that route will share more details about operations with lawmakers and the general public. But “Treasury declined requests to make public the initial ISO plans and annual reports, deciding that the Treasury Department and the IRS did not have the authority to disclose taxpayer information or to require taxpayers to self-disclose taxpayer information as a condition of using the ISO standards.”81 While Subpart RR has the perk of allowing taxpayers to self-certify claimed carbon oxide volumes for 45Q purposes, taxpayers who elect to use ISO would instead need to have their documentation “certified as accurate and complete by a qualified independent engineer or geologist.”82 Part IV further addresses drawbacks of the ISO disclosure option for EOR.

The bipartisan infrastructure bill President Biden signed in 2021 also amended the tax code to add a new category of tax-exempt bonds for financing “qualified carbon dioxide capture facilities.”83 Though these bonds come with strings of their own (e.g., “interactions with the governmental issuer, a public hearing requirement, mandatory straight-line depreciation, and limitations on the maximum maturity of the debt”) the law nevertheless meant project creators might be able to cut borrowing costs by relying on these bonds in addition to other financing for their projects.84

III. Who Is Capturing Carbon and Claiming 45Q

There were 12 commercial projects capturing CO2 operating in U.S. in 2022, plus another nine facilities classified as pilot or demonstration projects that are operational.85 Globally, there were a total of 27 operational CCS facilities as of 2021,86 while estimates mid-2022 put that number slightly higher, at 29 operational facilities worldwide.87 Existing U.S. carbon capture facilities—some of which have been in use since the 70s and 80s—operate in a number of industries, including hydrogen, ethanol, fertilizer, and synthetic natural gas production, as well as in natural gas processing.88 Operational U.S. facilities captured and sequestered “6.8 million tons of industrial carbon dioxide underground in 2020, enough to offset the emissions from 1.5 million passenger cars.”89 The most recent U.S. facility to come online was in 2017, however, reflecting the relatively long lead-time needed to plan, build, and put into service a carbon capture project.90 And of the 12 operational U.S. carbon capture facilities, the Global CCS Institute reports that just one, Illinois Industrial Carbon Capture and Storage, has injected CO2 for secure geological storage—in that case, taking more than 1 million metric tons of the greenhouse gas from an ethanol plant and putting it into an underground sandstone formation.91 In 2022, the other 11 operational CCS facilities were using captured CO2 from gas, hydrogen, and fertilizer operations for EOR.92

Still, even before the IRA updated 45Q, the credit’s impact was visible in the projects companies had announced since the tax credit was enacted and subsequently extended and enhanced. The Clean Air Task Force tracks newly announced carbon capture projects that intend to claim the tax credit, and reported last year that “84 total U.S. projects have been announced since 45Q was reformed in 2018 with 51 announced in 2021 alone.”93 The vast majority of those 84 planned projects —71 percent—aimed to sequester captured carbon in dedicated saline storage.94 Thus, while the vast majority of existing carbon capture project involve EOR,95 those planned in the future skew toward storage.96 Of announced projects, 71 percent were in the industrial sector. Another 23 percent of projects in the pipeline (representing 19 facilities) were in the power sector: 11 natural gas, six coal, one biomass, and another waste-to-energy.97 A direct air capture project was planned at scale as well.98 Natural resources consulting firm Wood Mackenzie reported that “[t]he 45Q tax credit has proved highly effective in positioning the US as the global leader in CCS . . . There’s a mere 61 [million tons a year] of operating capacity globally, and the 200 CCS projects announced in 2021 lift development capacity to around 700 [million tons a year].”99

In terms of which operators were actually claiming the 45Q credit in 2022 and in what numbers, data is somewhat harder to locate. That is at least in part because of the inherently non-public nature of taxes. Indeed, disclosure and transparency are ongoing issues for 45Q.100 In commenting in 2020 on proposed Treasury regulations, the Clean Air Task Force, Environmental Defense Fund, Nature Conservancy, Shell Oil, and others called on the IRS to explore its authority to mandate disclosure to enhance accountability and compliance under the tax credit.101 But in its final regulations, the IRS rejected those groups’ call for “establishing procedures for public reporting of the amount of carbon oxide sequestered using the ISO standard.”102

Members of Congress have also raised alarm about potential abuse or fraud among taxpayers claiming the credit, in part due to a lack of transparency in who benefits and in the EPA reporting process.103 An Inspector General report in 2020, released in response to questions from Democratic Sen. Robert Menendez of New Jersey, revealed the troubling extent and potential far-reaching consequences of lack of disclosure. As discussed in Part II, that report showed that of $1 billion in 45Q credits claimed from 2010 to 2019, $893 million failed to meet EPA reporting requirements and almost 100 percent were claimed by 10 companies.104 Menendez called the chasm between claimed credits and MRV plans on file with EPA an “apparent failure of the fossil fuel industry to act in good faith.”105 This was a major issue with 45Q in its first decade. However, the 2018 reforms in some ways sought to address it. And the Clean Air Task Force has argued that IRS’s response to Menendez’s concerns showed that “the system is working. If taxpayers don’t demonstrate secure geologic storage, they won’t get the credit—nor should they.”106 After all, the IRS did take action against four of 10 taxpayers who claimed credits without approved MRV plans, and three of 10 had open audits as of 2020.107

Given the required disclosures following 2018 reforms, publicly available MRV reports are one additional proxy for gauging who exactly is storing carbon (and in what quantities) with the benefit of 45Q.108 Though an MRV report might109 or might not110 explicitly say a company is claiming the tax credit, such a report covering injection of eligible carbon above the 45Q tonnage threshold nevertheless paints a picture of how much carbon is being stored by a taxpayer who is likely claiming the tax credit (or, in any event, is eligible to make such a claim). As of 2022, some taxpayers who could be complying with 45Q reporting regulations by submitting an ISO report were already electing instead to submit an MRV. For example, Perdure Petroleum submitted an MRV to EPA in connection with EOR at its Farnsworth Unit, writing that:

Perdure 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.111

In contrast to the Farnsworth project, which is pursuing EOR, other projects, such as the storage-based Lucid project in New Mexico, were submitting MRVs purely for sequestration of CO2.112

Another way to quantify who is taking advantage of 45Q and to what extent is to look at U.S. Treasury Department tax expenditures projections. Those projections estimate “revenue losses attributable to provisions of Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit . . .”113 Pre-IRA passage, the Department estimated that the 45Q tax credit will have cost the Treasury $460 million in 2021, $580 million in 2022, and a total of $20 billion from 2022 to 2031.114 In fact, the dollar amount taxpayers claim under the credit was expected to grow every year during that window, more than doubling from 2021 levels by 2025—a year in which Treasury expects $1.02 billion in annual 45Q credits claimed.115 Ultimately, the department anticipated 45Q claims reaching $3.71 billion per year in the year 2031.116 For comparison, the cost of the 45Q tax credit from 2022 to 2031 was expected to be roughly on par with the cost of the federal government allowing capital gains exclusions of small corporation stock.117 (Still, the impact of 45Q credits pre-IRA was not all that large: It was less costly than the exclusion allowed for reimbursed employee parking expenses, for instance, which was set to cost the Treasury more than $24 billion over the same period.)118

IV. Problems with 45Q Pre-IRA and Potential Solutions

As advocacy groups like the Clean Air Task Force have noted, Treasury regulations could mandate more robust transparency, particularly as it relates to EOR.119 This would be a boon to environmentalists and members of the public interested in guaranteeing the tax credit is effective and beneficial from a climate perspective, though of course compliance costs could rise for operators if those measures were clumsily implemented. Specifically, future legislation, rules, or guidance could require more stringent injection-well reporting (along the lines of Subpart RR) for all taxpayers who claim the 45Q tax credit—not just for those doing secure geological storage. However, as explained in Part II, under today’s regulations EOR operators can either elect to voluntarily report carbon injection via EPA’s Subpart RR, or comply through ISO, which does not require the same documentation be public (though injected CO2 must be verified by a third party, even if details are kept private).120 Moving to a system more uniformly transparent than the one 2021 Treasury regulations established would have two benefits. First, it would assure the public and lawmakers that those pumping carbon underground to keep it out of the atmosphere are actually doing so in a way that complies with best practices, guaranteeing a climate benefit.121 Second, it would make crystal clear which taxpayers and industries are benefiting from carbon capture incentives like 45Q, and to what extent, helping maintain public confidence and bipartisan political support.122 This valuable context could also help lawmakers improve and better target the credit in future reforms.

From a business perspective, meanwhile, lack of a 45Q direct pay option was a longtime problem. But the IRA changed this, authorizing CCS developers to get a fully refundable direct payment through 45Q, “as if it were an overpayment of taxes.”123 Before, 45Q was only valuable to the extent that an operator paid taxes that could be lowered by claiming the credit—or to the extent that a low- or no-tax operator could jury-rig a complex tax-equity financing arrangement with investors who did have tax credit appetites.124 Accounting firm Ernst & Young has explained that direct pay makes “for potentially easier monetization of credits, particularly for more nascent and less frequently used technologies, such as fuel cells or carbon capture systems.”125 It could be a game-changer:

With direct pay, CCUS projects’ capital costs become relatively cheaper, lower-cost debt financing can be more easily accessed, more companies can take part, and the cost of CO2 reduction and removal becomes lower. This is important because a lower capital cost can encourage more investors, and more projects can be financed.126

The dollar value of the credit was also an issue before the IRA. CCS supporters argued it was not high enough to spur investment. President Biden’s Build Back Better (BBB) social-spending proposal promised to revise 45Q significantly, including increasing the credit value to $85 per metric ton for carbon captured and stored.127 And the IRA—the compromise ultimately signed into law—mirrored those top-line dollar amounts.128 The Clean Air Task Force had predicted that BBB proposal to boost the 45Q credit would drive up U.S. carbon capture capacity 13-fold by the mid-2030s.129 Following IRA passage, carbon captured from industry and power generation, then stored in saline geologic formations, is now worth $85 per ton—up from $50 per ton previously.130 Meanwhile, the credit for utilization of carbon from industry and power generation rises from $35 to $60 per ton.131 For carbon directly captured from the air, the incentive for saline storage increases from $50 to $180 per ton, while the incentive for utilization of that carbon increases to $130.132 Moreover, the updated 45Q credit “can be realized for 12 years after the carbon capture equipment is placed in service and will be inflation-adjusted beginning in 2027 and indexed to base year 2025.”133

Beyond the IRA’s 45Q dollar-value increases (available so long as prevailing wage and apprenticeship requirements are followed)134 and its direct-pay option, a handful of other key changes are worth noting. First, the IRA extends the commence-construction window for projects that qualify. Physical work must start by Jan. 1, 2033 for credit eligibility.135 Second, broad transferability provisions are extended, meaning all or some of the credit value can be transferred to a third party in exchange for cash.136 Third, the definition of qualifying facilities is broadened. Now, a power-generation facility need only capture 18,750 tons of CO2 yearly to be eligible, compared to 500,000 tons previously.137 Industrial facilities are now eligible if they capture 12,500 tons, compared with 100,000 tons previously.138 And DAC facilities need only capture 1,000 tons per year (down from 100,000) to benefit.139

Before Republicans took control of the House in the 2022 midterm elections, several members of the GOP—anticipating that result—were reportedly “keen on 45Q, the carbon capture tax credit, a longtime GOP priority” as an area for action.140 Republican Sen. Shelley Moore Capito of West Virginia was quoted as saying:

We’ve also got our 45Q out there, which helps with carbon capture. We put a lot of money in for carbon capture and research and development in the national energy lab . . . I mean, these are things that have been bipartisan and Republican ideas in many cases, so I would imagine we would still be looking at this issue.141

Even with control of Congress divided, 45Q remains one of the few areas where bipartisan movement is imaginable and possibly achievable.

Conclusion

While CCS has grown in recent years with the help of the 45Q tax credit, that growth has nevertheless been slow. For boosters, this is troubling. Indeed, researchers estimate that “with current rates of deployment, CO2 storage capacity by 2050 is projected to be around 700 million tons per year, which is merely 10 percent of what is required” to meet net-zero targets by mid-century.142 Policymakers could do more to incentivize carbon capture technology—to make gas- and coal-fired electricity cleaner, to draw carbon from the air via direct capture, and to eliminate emissions from hard-to-decarbonize sectors such as cement and steel. As discussed above, 45Q has already positioned the U.S. as an undisputed leader in CCS. And lawmakers have already strengthened it by raising credit values and adding a direct pay option in the IRA, making CCS adoption more lucrative and accessible. But more can be done, such as increasing transparency in reporting for EOR, to quell environmental concerns and maintain bipartisan political support.

This is an original manuscript of an article previously published by Taylor & Francis in Environmental Claims Journal online on September 1, 2023.

Jared Gilmour graduated in 2023 with a J.D. from Columbia Law School and a master’s degree 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. He can be reached at [email protected].

Endnotes

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

2 Angela C. Jones & Ashley J. Lawson, Carbon Capture and Sequestration (CCS) in the United States, Cong. Rsch. Serv. (Oct. 18, 2021), 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., Leah Douglas, Biden Administration Sees Carbon Capture as Key Tool in Climate Fight, Reuters (Feb. 7, 2022), 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 Timothy Cama, White House Jumps into Fight over Energy Subsidies, The Hill (Dec. 4, 2018), 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 John Thompson, Bipartisan Support for Carbon Capture Jobs, Clean Air Task Force (April 21, 2021), 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., Press Release, Office of Sen. Tina Smith, U.S. Senators Smith, Capito Lead Bipartisan Senate Effort to Reduce Greenhouse Emissions with Carbon Capture Legislation (Mar. 25, 2021), 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 Carbon Capture, Transport, & Storage: Supply Chain Deep Dive Assessment, U.S. Dep’t of Energy (Feb. 24, 2022), https://www.energy.gov/sites/default/files/2022-02/Carbon%20Capture%20Supply%20Chain%20Report%20-%20Final.pdf.

8 Marc Jaruzel, Policy Support Drives Direct Air Capture Forward, Clean Air Task Force (Nov. 11, 2021), 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 tonnes 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., Press Release, Office of Rep. David McKinley, McKinley: Developing Carbon Capture Is Paramount (Dec. 15, 2020), 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 Int’l Energy Agency, Energy Technology Perspectives: Special Report on Carbon Capture Utilisation and Storage (2020), https://iea.blob.core.windows.net/assets/181b48b4-323f-454d-96fb-0bb1889d96a9/CCUS_in_clean_energy_transitions.pdf.

12 Jones & 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 Vincent Gonzales, Alan Krupnick & Lauren Dunlap, Carbon Capture and Storage 101, Res. for the Future (May 6, 2020, updated Feb. 3, 2022), https://www.rff.org/publications/explainers/carbon-capture-and-storage-101/.

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

17 Id.

18 Id.

19 Fact Sheet: Capturing CO2, Glob. CCS Inst. (2015), 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 Angela C. Jones & Molly F. Sherlock, The Tax Credit for Carbon Sequestration (Section 45Q), Cong. Rsch. Serv. 1 (June 8, 2021), https://sgp.fas.org/crs/misc/IF11455.pdf.

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

31 Id.

32 Id.

33 Id.

34 Fact Sheet: Transporting CO2, Glob. CCS Inst. (2018), 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 & Lawson, supra note 2, at 9.

39 Carbon Storage FAQs, Nat’l Energy Tech. Lab’y (accessed Apr. 13, 2022).

40 Id.

41 Id.

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

43 Id.

44 Id. at 114.

45 Lee Beck, The US Section 45Q Tax Credit for Carbon Oxide Sequestration: An Update, Glob. CCS Inst. (Apr. 2020), 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 & Sherlock, supra note 29, at 1.

49 Beck, supra note 45, at 2.

50 Id.

51 Jones & 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 Michael Rodgers & Brandon Dubov, Carbon Capture and Storage: The Legal and Regulatory Context, White & Case (Jan. 29, 2021), https://www.whitecase.com/publications/insight/carbon-capture/us-tax-credit-encourages-investment.

53 Eric L. Martin & Michael N. Mills, Net-Zero Without Carbon Sequestration Is ‘Virtually Impossible’; Yet Site Acquisition and Permitting Hurdles Hinder Implementation, POWER (Feb. 1, 2022), https://www.powermag.com/net-zero-without-carbon-sequestration-is-virtually-impossible-yet-site-acquisition-and-permitting-hurdles-hinder-implementation/.

54 Melody Bomgardner, 45Q, the Tax Credit That’s Luring U.S. Companies to Capture CO2, Chem. & Eng’g News (Feb. 23, 2020), 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 & Lawson, supra note 2, at 21. See also David Doniger & Danielle Droitsch, Capturing Carbon Pollution While Moving Beyond Fossil Fuels, NRDC Expert Blog (Mar. 1, 2018), 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 Benjamin J. Hulac, Treasury IG: A Decade of Carbon-Capture Tax Credits Were Faulty, Roll Call (Apr. 30, 2020), 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 & Dubov, supra note 52.

59 Id.

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

61 Rodgers & 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 Armando Gomez et al., Guidance on Carbon Capture and Sequestration Tax Credit Provides Clarity for Developers and Investors, Skadden, Arps, Slate, Meagher & Flom LLP (June 8, 2020), 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 & 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 & Sherlock, supra note 29, at 1.

67 Id.

68 Id.

69 Id. at 2.

70 Ryan Bray, Larry Crouch & Todd Lowther, IRS Issues Final Regulations on Section 45Q Carbon Capture Credits, Shearman & Sterling (Mar. 30, 2021), https://www.shearman.com/perspectives/2021/03/irs-issues-final-regulations-on-section-45q-carbon-capture-credits.

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

72 Bray, Crouch & Lowther, supra note 70.

73 Id.

74 Client Alert: Treasury Finalizes Carbon Capture Tax Credit Regulations, Latham & Watkins 7 (Jan. 21, 2021), 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 Brian P. Teaff & Victoria N. Ozimek, Certain CCUS Projects Now Eligible for Financing with Tax-Exempt Bonds, Bracewell (Feb. 3, 2022), https://bracewell.com/insights/certain-ccus-projects-now-eligible-financing-tax-exempt-bonds.

84 Id.

85 Facilities Database, Glob. CCS Inst. (accessed Apr. 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 Guloren Turan & Alex Zapantis, Global Status of CCS 2021 14, Glob. CCS Inst. (2021), 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 85.

88 Id.

89 Richard Valdmanis, Proposed U.S. Carbon Capture Credit Hike Cheers Industry, Worries Greens, Reuters (Nov. 1, 2021), 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 85.

91 Jones & 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 Overview of U.S. Carbon Management Projects, Clean Air Task Force (Jan. 2022), https://cdn.catf.us/wp-content/uploads/2022/01/22135134/overview-carbon-management-projects.pdf.

94 Id.

95 Jones & 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 93.

98 Id.

99 Simon Flowers, The Coming Carbon Capture and Storage Boom – We Have Lift Off, Wood Mackenzie: The Edge (Jan. 31, 2022), https://www.woodmac.com/news/the-edge/the-coming-carbon-capture-and-storage-boom–we-have-lift-off/.

100 See, e.g., Amy Harder, Big Oil Quietly Pushes Change to New Carbon Law, Axios (May 21, 2018), 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 Sec. Mnuchin and Comm’r Rettig, Re: Notice of Proposed Rulemaking on Credit for Carbon Oxide Sequestration, Docket No. REG–112339–19 (Aug. 3, 2020), 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 Lee Beck, CATF Statement on final 45Q Tax Credit Guidance, Clean Air Task Force (Jan. 7, 2021), 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 Gen. for Tax Admin. (Nov. 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 Press Release: Menendez Releases Inspector General Investigation Finding Fossil Fuel Companies Improperly Claimed Nearly $1B in Clean Air Tax Credits, Sen. Bob Menendez (April 30, 2020), 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 Kurt Waltzer, Do It Right – the IRS Shows Why It Pays to Comply with Storage Standards, Clean Air Task Force (April 30, 2020), 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 Apr. 18, 2022) https://www.epa.gov/ghgreporting/subpart-rr-geologic-sequestration-carbon-dioxide.

109 See, e.g., Lucid Energy Delaware, LLC, Monitoring, Reporting and Verification Plan for Red Hills AGI #1 and AGI #2 (Sept. 2021), 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.” Mella McEwen, EPA Approves Lucid’s Plan for Major Permian CCS Project, Midland Rep.-Telegram (Jan. 15, 2022), 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, West Ranch Oil Field CO2 Monitoring, Reporting and Verification (MRV) Plan (July 2021), https://www.epa.gov/system/files/documents/2021-09/wru_mrvplan.pdf (no mention of 45Q claims). Petra Nova, as mentioned in note 92, 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.” Deepika Nagabhushan & Lee Beck, Petra Nova, De-risking Carbon Capture Business Models with Saline Storage, Clean Air Task Force (Aug. 7, 2020), 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, Farnsworth Unit, Texas (FWU) Monitoring, Reporting, and Verification Plan (May 2021), 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 Office of Tax Analysis, Tax Expenditures: FY2023, U.S. Department of Treasury (Dec. 9, 2021), 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.” N. Hunter Johnston, Lisa M. Zarlenga, John Cobb, Government Issues Much-Anticipated Guidance on the Carbon Sequestration Credit, Steptoe (June 1, 2020), 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., Press Release, Coalition Welcomes IRS Inspector General Report, Calls for Agency to Follow Coalition Recommendations to Safeguard Integrity of New 45Q Tax Credit, Carbon Capture Coal. (Apr. 30, 2020), 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 Letter to IRS Re: Comments on Proposed Regulations for IRC § 45Q at 3 (Aug. 3, 2020), 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 Emeka Ochu, Proposed 45Q Tax Credit Reform Could Give a Big Boost to Carbon Capture Projects, Columbia Climate Sch.: State of the Planet (May 6, 2021), https://news.climate.columbia.edu/2021/05/06/proposed-45q-tax-credit-reform-boost-carbon-capture-projects/.

125 Brian Murphy, Tax Equity in a Direct-Pay World, Ernst & Young (Mar. 2, 2022), 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 124.

127 See Valdmanis, supra note 89.

128 See Clean Air Task Force, supra note 122.

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 122.

131 Id.

132 Id.

133 Id.

134 See Omar Samji et al., Inflation Reduction Act: Key Green and Blue Hydrogen CCUS Provisions, Shearman & Sterling (Aug. 12, 2022), 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 Nick Sobczyk, GOP, Eyeing Hill Takeover, Mulls Energy and Climate Agenda, E&E Daily (Jan. 21, 2022), https://www.eenews.net/articles/gop-eyeing-hill-takeover-mulls-energy-and-climate-agenda/.

141 Id.

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