45Q Tax Credit

The Bipartisan Budget Act of 2018 included in its entirety the FUTURE Act introduced in the U.S. Senate in 2017 to extend and reform the 45Q tax credit. Key provisions include:

  • Increases the credit value incrementally over ten years from $10 to $35 per metric ton of CO2 stored geologically through enhanced oil recovery and from $20 to $50 per ton for saline and other forms of geologic storage.
  • Provides $35 per ton for CO2 captured and put to beneficial uses beyond EOR that reduce lifecycle emissions.
  • Authorizes the program for carbon capture projects that commence construction within 7 years from enactment, and projects meeting that timeframe can claim the credit for 12 years after being placed in service.
  • Reduces the minimum eligibility threshold for qualified facilities from 500,000 metric tons of CO2 captured annually to 100,000 tons for industrial facilities and 25,000 tons for CO2 captured and put to beneficial uses other than EOR. Retains the 500,000-ton eligibility threshold for electric generating units.
  • Awards the credit to the owner of the carbon capture equipment and allows transfer of the credit to other entities responsible for managing the CO2 to provide greater flexibility for companies with different business models to utilize the tax credit effectively, including cooperatives and municipal utilities.
  • Allows projects that involve carbon monoxide capture and direct air capture to qualify for the credit as well.

Federal Policies to Complement 45Q: The USE IT Act, Tax-Exempt Private Activity Bonds and Master Limited Partnerships

While recent congressional extension and reform of the 45Q tax credit provides the most important federal incentive for encouraging private investment in carbon capture deployment, additional federal incentives would complement 45Q and enable more capture projects to become commercially feasible, thus accelerating deployment across multiple industries.

Building on reform of 45Q, the USEIT Act has been recently introduced in the Senate with bipartisan support (S.383). The USE IT Act will foster continued development and deployment of carbon capture by authorizing the EPA Administrator to coordinate with the Secretary of Energy on furthering research, development and demonstration of carbon utilization and direct air capture technologies. The bill would also support collaboration between federal, state and non-governmental interests to facilitate planning and deployment of pipelines to transport CO2 for ultimate storage or beneficial use. Click here to read the Coalition one-pager on the USEIT Act.

The Carbon Capture Coalition also supports federal legislation to make carbon capture projects eligible for tax-exempt private activity bonds (PABs) and master limited partnerships (MLPs). PABs would allow developers of carbon capture projects access to tax-exempt debt to help finance their projects, thus lowering their capital costs.

The MLP structure combines the tax benefits of a partnership with a corporation’s ability to raise capital in public markets. Thus, allowing carbon capture projects to be MLPs would reduce the cost of equity and provide access to capital on more favorable terms.