How Transferability Provisions Help Ensure the Continued Success of the Section 45Q Tax Credit 

A new fact sheet published by the Carbon Capture Coalition provides an overview of how transferability provisions will enable a larger variety of developers to access the full benefits of the 45Q tax credit, ultimately leading to more projects being announced and built. 

First and foremost, 45Q is good energy policy. The tax credit is working as Congress intended: driving significant investment in carbon capture technologies nationwide and in various sectors. 45Q is mission-critical for the deployment of carbon management technologies in the US. Recognizing that 45Q is the primary market driver for these technologies, in 2022 Congress revamped the tax credit, increasing credit levels across technologies and end uses and extending the commence construction deadline.  

In addition to these enhancements, Congress allowed taxpayers to transfer or sell certain energy credits to third parties for the first time. In 2024, the Department of the Treasury and the Internal Revenue Service issued final regulations to implement those new transferability provisions. 

Historically, 45Q project developers have structured project financing – cash needed to build projects – through a mix of debt, tax equity, and equity. If project developers did not have enough tax liability to elect tax credits directly, they had to go through tax equity markets – a small group of lenders with a limited pool of financing – and enter complex and costly tax equity transactions. By allowing taxpayers to sell 45Q credits, project developers can sidestep costly tax equity markets and sell tax credits generated by energy and industrial projects to a third party buyer for cash. This helps mitigate risk for both buyer and seller. 

Additionally, transferability puts more of the value of the tax credit directly in the developer’s hands. In traditional tax equity markets, investors in carbon management projects typically require higher rates of return for investments in newer technologies – these can reach up to 30 percent, or more, of the tax credit value. In contrast, tax transfers in 2024 averaged a loss of 5 to 7.5 percent of the value of the tax credit, a significant savings.  

What is more, transferability provisions help attract a wider pool of investors, increasing competition in the marketplace and providing more competitive pricing for the transfer of credits as opposed to the more limited pool of tax equity investments  Transferability allows these developers to sell their 45Q tax credits to companies or organizations with tax liability, effectively converting the tax credit into cash to payback capital expenditures for installing carbon management technologies. 

Finally, transferability provisions help drive innovation; they are beneficial in financing newer technologies, providing an alternative pathway to funding and deployment. Transferability provisions for 45Q are helping to spur the carbon management industry forward.  

You can read the fact sheet here. 

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The Carbon Capture Coalition (the Coalition) is a nonpartisan collaboration of more than 100 companies, labor unions, and conservation and environmental policy organizations. Coalition members work together to lay the groundwork for the necessary portfolio of federal policies to enable nationwide, commercial-scale deployment of carbon management technologies.