Qualifying taxpayers can claim the carbon capture and sequestration credit—often referred to by its section in the tax code (45Q)—for every metric ton of carbon oxide they capture and sequester that would have otherwise been released into the atmosphere. Congress created the 45Q credit in the Emergency Economic Stabilization Act of 2008 (commonly, the “Bank Bailout”) and set the credit to expire the year after the Internal Revenue Service (IRS) certifies that credits have been claimed for 75 million metric tons of carbon dioxide. In June 2020, the IRS reported that credits had been claimed for 72 million metric tons.
In the Bipartisan Budget Act (BBA) of 2018, Congress greatly expanded and extended the section 45Q credit. Carbon oxides captured by equipment placed in service after enactment of the BBA of 2018 are not subject to the 75-million-ton cap. Instead, taxpayers can claim the credit for every ton captured for the first 12 years after the equipment is operational. The law also set the value of the credit to increase over time. If a taxpayer sequesters a ton of carbon oxide in a geologic formation after capturing it, they can claim a credit of $37.85 in 2022, ramping up to $50 per ton in 2026. Carbon that is captured and injected into an oil and gas well to increase production, or otherwise “utilized,” qualifies for a credit ramping up to $35 per ton in 2026. Noncompliance with U.S. Environmental Protection Agency (EPA) standards for carbon sequestration reporting and increased oil and gas production from injected carbon oxides have undermined the 45Q credit’s effectiveness in reducing carbon emissions.« Back to Database