Industrial Carbon Capture and Sequestration Tax Credit


Energy - Fossil Fuels

Subsidy Type

Tax Expenditure

Committees of Jurisdiction

House Committee on Ways and Means, Senate Finance Committee

$ FY 22 Budget Score (in mil.)
$2,000 FY 22-31 Budget Score (in mil.)

Carbon capture and sequestration involves separating carbon oxides (COX) from combusted fossil fuels or capturing them directly from the atmosphere. The carbon oxides are then stored (“sequestered”) by either pumping them into underground geologic formations or using them to produce some other product. The technology is predominantly designed to be used with coal, coal-to-liquid or gas plants to decrease their overall carbon emissions, though recent advances have allowed direct air capture as well. The Emergency Economic Stabilization Act of 2008 created a tax credit for companies that capture and store carbon, which the Bipartisan Budget Act of 2018 then modified and expanded. At present, the credit has different values for equipment placed into service before or after Feb. 9, 2018. For machines placed into service before that date, the maximum credit value (which is now adjusted annually for inflation) in 2020 was $23.81 per metric ton of carbon oxide placed in secure geological storage and was eligible only for equipment owners that capture at least 500,000 tons per year and only until they had sequestered 75 million tons. For machines placed into service after Feb. 9, 2018, the maximum credit value was $31.77 per ton sequestered in secure geological storage—set to increase to $50/ton in 2026 and then be annually adjusted for inflation—with a 12-year claim period. For these machines, there are also different minimum capture amounts depending on the type of facility, more flexibility in who can claim the credit, and a requirement for the equipment to begin construction before 2026. Secure geological storage can include deep saline formations, oil and gas reservoirs, or unminable coal seams. To qualify, a facility must capture at least 500,000 metric tons of carbon dioxide during the taxable year. The credit has been indexed to the rate of inflation since 2009.

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