Direct Pay Legislation Introduced in the U.S. House of Representatives – Measure Would Increase Tax Credit Efficiency and Impact

July 31, 2020 | News

Carbon Capture Coalition Director Brad Crabtree released the following statement on the introduction of direct pay legislation today by Representatives Jack Bergman (R-MI) and Lizzie Fletcher (D-TX):

“The Carbon Capture Coalition recognizes Representatives Jack Bergman and Lizzie Fletcher for their leadership in support of carbon capture and thanks them for today’s introduction of the RECOUPS Act (Redeeming Effectiveness to Carbon Oxide Utilization Plus Sequestration Act of 2020). The bill provides a direct pay option for the federal Section 45Q tax credit for geologic storage and beneficial use of carbon captured at industrial facilities, power plants and through direct air capture.

The basic mechanism of direct pay allows a taxpayer to treat tax credits that they have earned as an overpayment of taxes. The RECOUPS Act would give businesses and individual investors the choice to have 45Q tax credits be applied directly to estimated tax payments due. Treatment of the 45Q tax credit as an estimated tax payment provides a much more effective and cost-efficient mechanism to incentivize projects than monetizing a tax credit. In exchange for choosing this option, project developers would only receive 90 percent of the tax credit’s value, thus providing the same or greater incentive to innovators and entrepreneurs at less cost to the American taxpayer.

In the midst of COVID-19, direct pay has become critical to enabling developers to finance carbon capture projects without relying on tax equity investments at a time when those markets are now constrained.  In response to the bipartisan Congressional reform and expansion of the 45Q credit in early 2018, there are now more than 30 carbon capture projects under various stages of development across multiple industries. The potential completion of these projects would represent a tripling of the number of commercial scale carbon capture facilities operating in the U.S. today. An analysis by the Rhodium Group shows that each carbon capture project at representative industrial facilities and power plants would generate hundreds to thousands of high-wage jobs.

By implementing direct pay, we can accelerate the development and construction of these 30-plus carbon capture projects and encourage development of additional projects to help our nation meet mid-century climate goals, while jumpstarting the near-term economic activity and job creation America urgently needs to begin recovering from the economic crisis caused by the COVID-19 pandemic.

We applaud Representatives Bergman and Fletcher for their initiative in support of direct pay and encourage House and Senate leaders to include direct pay in the next COVID-19 package in order to safeguard the jobs and emissions reductions benefits of carbon capture projects that may be imperiled by market uncertainty.”

Read a summary of the RECOUPS Act here.