Carbon Capture Coalition Submits Comments to Treasury and IRS on Proposed 45Q Rulemaking

August 3, 2020 | News

Comments Reflect Consensus-Based Work by the Coalition’s 80 Companies, Unions and NGOs to Enact and Implement the 45Q Tax Credit

The Carbon Capture Coalition formally filed comments in response to the Internal Revenue Service’s (IRS) notice of proposed rulemaking to implement the 45Q tax credit for the geologic storage and beneficial use of carbon captured from industrial facilities, power plants and ambient air.

The following statement can be attributed to Carbon Capture Coalition Director Brad Crabtree:

“Today marks the culmination of nearly a decade of work by the Carbon Capture Coalition’s industry, labor and NGO participants and partners to advance the development, passage and final implementation of the federal Section 45Q tax credit to incentivize private investment in economywide deployment of carbon capture, transport, use, removal and geologic storage across a range of key industries.

Since the passage of the revamped and expanded 45Q tax credit as part of the Bipartisan Budget Act in February of 2018, the Coalition has spent over two years building consensus among its growing membership of 80 companies, unions and NGOs on the effective implementation of 45Q, including two comprehensive submissions of consensus model guidance and recommendations to Treasury and the IRS in November 2018 and June 2019, respectively.

Now, these comments in response to the IRS’ proposed final rule address a range of topics, including:

  • Reaffirming the IRS’ establishment of an additional, International Organization for Standardization (ISO)-based monitoring, reporting and verification (MRV) option to provide for a demonstration of secure geologic storage through CO2-enhanced oil recovery that is equivalent to the U.S. Environmental Protection Agency’s existing Subpart RR rule, while urging the IRS to provide transparency for the ISO pathway that is comparable to Subpart RR by exploring ways to ensure public disclosure consistent with relevant statutory limitations;
  • Specifying qualifications for a “qualified independent engineer or geologist” to provide third-party verification of implementation and compliance with an ISO-based MRV pathway;
  • Recommending that the IRS consider a shorter lookback period than five years for credit recapture given the physical properties of geologic storage and that the chance of CO2 leakage is low and the risk of leakage volumes exceeding credits claimed in a single tax year is exceedingly low; and
  • Requesting that the IRS clarify several issues, including contractual assurance and definitions of carbon capture equipment, commercial markets for carbon utilization, and electric generating facilities.

Looking ahead, IRS finalizing the proposed rule for 45Q will provide overdue regulatory and investment certainty to unlock billions of dollars in private capital for carbon capture projects to complete planning, engineering, permitting and financing to begin construction by the end of 2023 and qualify for the credit.

The critical next steps are in Congress’ court. In just over two years since the reform and expansion 45Q, over 30 commercial-scale carbon capture projects across multiple industries have been publicly announced and are under development in response to the tax credit. These projects are now imperiled by the rapidly narrowing window to commence construction, with over two years lost to delays in Treasury and IRS guidance and rulemaking, coupled with near-term project financing challenges due to COVID-19. Action by Congress now is urgently needed to enact a multiyear extension of 45Q, together with a direct pay option for the tax credit to finance projects at a time when tax equity markets for investment are constrained in the wake of the pandemic.”