Coalition Welcomes IRS Inspector General Report, Calls for Agency to Follow Coalition Recommendations to Safeguard Integrity of New 45Q Tax Credit

Carbon Capture Coalition Director Brad Crabtree issued a statement today in response to the release of a letter from the Internal Revenue Service Inspector General regarding tax credit claims under the old 45Q tax credit program:

“The Carbon Capture Coalition has long supported robust transparency and accountability in monitoring, reporting and verification (MRV) of secure geologic storage to claim the 45Q tax credit. It is of paramount importance for achieving the environmental objectives of the 45Q program and maintaining public confidence and bipartisan support in Congress.

That is why the Carbon Capture Coalition’s over 75 companies, unions and NGOs wrote a letter in March to Treasury Secretary Mnuchin and Internal Revenue Service (IRS) Commissioner Rettig urging them to safeguard the integrity of the 45Q tax credit in the IRS’ forthcoming proposed rule.

The Coalition thus welcomes the IRS inspector general’s (IG) investigation of the old 45Q program and his findings that the IRS is auditing past claims of credits. We commend the IRS for doing its job and disallowing a majority of the credits claimed to date for which MRV requirements have not been met, and we strongly encourage the IRS to continue its compliance efforts.

It is critical that the IRS continue to enforce compliance and ensure that noncompliant claims of credits are not allowed a public tax benefit. Any company claiming 45Q tax credits must comply IRS rulings and provide a proper mass balance accounting of the tons of CO2 stored in return for receiving the credits.

The issues identified by the IRS inspector general in the old 45Q program cannot be allowed to taint the new and reformed 45Q program, which was enacted on a broadly bipartisan basis and backed by the most diverse industry, labor and environmental coalition ever assembled on behalf of a federal energy and climate policy.

Economywide deployment of carbon capture is essential to meeting midcentury climate goals and to supporting domestic energy, industrial and manufacturing sectors and their associated high-wage jobs. The best way to achieve this is with financial incentives such as the performance-based 45Q tax credit, just as the successful deployment and commercialization of other low and zero carbon technologies have relied on federal tax credits and other incentives.

Therefore, the Carbon Capture Coalition once again urges Secretary Mnuchin and Commissioner Rettig to embrace the Coalition’s broad-based consensus recommendations and insist on the utmost accountability and transparency in any MRV pathway identified in the IRS’ pending 45Q rule. We also encourage members of Congress to oppose any legislative efforts to undermine the integrity of the accounting for secure geologic storage required to claim the 45Q credit.”

Below are several quotes of support from Coalition members:

“The Nature Conservancy appreciates the work of the IRS inspector general to identify taxpayers that failed to comply with monitoring and reporting requirements. Effectively meeting the challenge of climate change demands a diverse set of climate solutions and effective policies to drive these technologies forward. It is imperative that forthcoming IRS requirements for the demonstration of secure geologic storage contain robust standards for monitoring, reporting, and verification consistent with the consensus recommendations of the Carbon Capture Coalition. Doing so is critical to maintain public trust and support for this essential program.”

– Jason Albritton, Director of Climate and Energy Policy, The Nature Conservancy 

“Carbon capture is the most impactful solution to address climate change in a timely fashion along with renewables and energy efficiency solutions.  Industrial point sources capture and direct air capture are complementary solutions to achieve net-zero targets.  This is serious business that needs to be carried-out by mature and accountable major energy companies with the right skill set and balance sheet.  45Q tax credits and its compliance with stringent monitoring, reporting & verification (MRV) requirements in the 45Q statue, guidance & regulations is essential to the sustainable deployment and survival of the entire emerging carbon management industry.’’

– Claude Letourneau, President & CEO, Svante Inc.

“This is simple. We will not reach net zero emissions by 2050 without the sequestration of carbon dioxide. Unless the monitoring, reporting, and verification process of 45Q is trustworthy and accurate, as intended in the law, the program will be in doubt, and the nation’s taxpayers will lose, and our progress on climate will suffer. Third Way urges the IRS to rigorously enforce accountability and transparency in 45Q oversight to ensure that taxpayer dollars are used fairly, and the U.S. is put on the fastest, fairest path to net zero emissions by 2050.”

– Josh Freed, Senior Vice President of the Climate Energy Program, Third Way

“This letter clearly illustrates that the system works as planned – businesses who sequestered CO2 and showed their plan to guarantee long-term storage received the credit, and IRS is ensuring that those who did not have that monitoring will not receive it. AND, this is exactly why the IRS needs to issue its full guidance on 45Q and provide clarity to businesses who want to keep carbon dioxide out of the atmosphere. Industry needs confidence that the credit works and that there is a clear, accessible, financeable path to accounting for carbon kept out of the atmosphere in the long term. There is tremendous bipartisan support for this program — leaders from both parties have pushed the IRS to publish final rules for how developers can claim the credit, which should remain everyone’s goal.”

– Rich Powell, Executive Director, ClearPath 

“The 45Q tax credit provides a significant incentive for the development of carbon capture, utilization and storage projects. Compliance with the monitoring, reporting and verification (MRV) requirements in the 45Q statute, guidance and regulations is paramount to the entire carbon capture industry. The Carbon Capture Coalition and individual Coalition participants have raised this issue before, most recently in a joint letter to Treasury Secretary Mnuchin in March 2020.

There is no problem with the credit. The problem lies with some companies who claimed the 45Q credit without an EPA-approved MRV plan, despite knowing that plan is required by the IRS.  Those irresponsible few who seek to cheat the system should be stopped. Senator Menendez’s efforts and IRS’ actions to catch and bring those companies into compliance are welcome. It is critical that IRS compliance efforts continue so that the integrity of the 45Q credit can be maintained for years to come.”

– Keith Tracy, President, Cornerpost CO2

“All carbon capture experts agree that monitoring is essential, and that strong monitoring is a foundation of regulation. I hope the IRS reaffirms this tenet and continues to grant credits to those projects that comply with EPA monitoring requirements.”

– Julio Friedmann, Senior Research Scholar, Center on Global Energy Policy

“Thanks to Senator Robert Menendez’s (D-NJ) persistent efforts, the IRS has provided the details on how it is enforcing compliance with the 45Q tax credit for carbon capture, utilization and storage (CCUS). This letter underscores the importance of transparency and appropriate oversight of geologic storage as a part of deploying this technology necessary to combat climate change. It also demonstrates the system is working. If taxpayers don’t demonstrate secure geologic storage, they won’t get the credit – nor should they.”

– Kurt Waltzer, Managing Director, Clean Air Task Force 

“Core Energy developed a monitoring, reporting, and verification plan under Subpart RR of the federal Greenhouse Gas Reporting Program that was approved by the US EPA prior to claiming any credits under 45Q.  Core is supportive of robust monitoring, reporting and verification (MRV) plans when claiming 45Q credits associated with EOR operations such as those put forward by the Carbon Capture Coalition. We encourage Treasury to evaluate the recommendations of the Carbon Capture Coalition when implementing other accounting protocols that could be put in place as alternatives to an MRV Plan under sub-part RR.  Regardless of which protocol is used, it is of critical importance that a taxpayer claiming the 45Q credit be subject to some form of verification by the IRS.”

– Bob Mannes, President and CEO, Core Energy 

“Transparency and confidence in a functioning system are critical to the future of carbon capture. The reformed 45Q program should implement monitoring, reporting and verification by a government entity to ensure secure storage. Carbon capture is a critical technology in reaching Net Zero emissions by mid-century, and we need to get it right.”

– Bob Perciasepe, President, Center for Climate and Energy Solutions 

“Citizens for Responsible Energy Solutions supports the Carbon Capture Coalition’s recommendations to the IRS and agrees that transparency and accountability are critical to ensure carbon capture technology meets robust standards for monitoring, reporting and verification. Tax benefits should go only to the companies that can prove their compliance, and oversight is critical for closing the door on bad actors and building confidence just as this technology is about to take off. CRES applauds the bipartisan efforts on Capitol Hill to address the threat of climate change through demonstrated, credible carbon capture utilization and storage technology.”

– Heather Reams, Executive Director, Citizens for Responsible Energy Solutions