Ensuring the Continued Success of the Carbon Management Industry Through a Robust 45Q Tax Credit  

A new research brief on the federal Section 45Q tax credit published by the Carbon Capture Coalition, with contributions from Brown Brothers Energy and Environment LLC, analyzes key factors that are impacting the deployment of carbon capture technologies in essential domestic industries, including cement, steel, chemicals production, as well as natural gas and coal-fired power generation.   

It’s clear that, above all, 45Q is good energy policy. The tax credit, combined with critical demonstration and deployment dollars from the Department of Energy, is working as Congress intended: driving significant investment in carbon capture technologies across the country and in a wide array of sectors. The 45Q tax credit has been the lynchpin for the deployment of carbon management technologies in the US since it was overhauled and made more widely available in 2018. In 2022, Congress enhanced the credit levels, intending to catalyze additional deployment in higher-cost sectors like industry and power.   

Today, more than 270 announced projects are in the US—132 of which are in advanced development—a marked increase from before the enactment of recent enhancements to the 45Q tax credit.  

However, the Coalition’s new analysis finds that inflation and other cost pressures have significantly increased the costs of deploying these technologies since the most recent enhancements to the credit in 2022, putting the fate of current and future investments in carbon capture, direct air capture, carbon reuse and supportive transport and storage infrastructure at risk. The message is clear—Congress must update the 45Q tax credit to offset these rising development and operational costs to sustain momentum toward widespread commercial deployment of carbon management technologies across essential American energy and industrial sectors. 

Beginning in 2020 and in the lead-up to the passage of recent 45Q credit enhancements, global economic turmoil, triggered by the COVID-19 pandemic, caused a domino effect: supply chain disruptions, surging inflation, and sharp increases in construction materials, equipment, and labor costs.  

Adding to the challenge, the Federal Reserve raised interest rates to cool inflation, making it even more expensive for developers to secure loans or attract corporate investment to finance carbon capture projects. Together, these factors have driven up the costs for capturing and storing CO₂ across key industrial and power sectors relative to cost estimates conducted in 2019 and prior.  

The study models four scenarios, based on two key variables: (1) whether the cost of installing carbon capture equipment was relatively high or low, based on the facility type, and (2) whether the project was owned by a large corporation able to use the tax credit directly, or by a smaller entity relying on tax equity financing. These factors greatly influence the cost per metric ton of installing and operating carbon capture and direct air capture facilities.  

The analysis also considers the impact of cost increases in financing, operations and maintenance, energy, and transport and storage between the end of 2020 and mid-2024. 

The results show that due to these factors, 45Q’s current value is insufficient to drive additional deployment of carbon capture technology across critical sectors of the US economy, including industry and power. To ensure greater deployment, the tax credit must be modified.  

Since carbon capture retrofits are unique to the facility where the technology is being installed, the analysis shows a range for the break-even cost to deploy these projects over the 12-year credit duration window. Cost estimates for various facility types across high-emitting sectors range from $109 to $153 per metric ton. The analysis determined that the median cost to deploy these technologies was $130 per metric ton across the four scenarios.  

Unfortunately, as it stands under current law, the value of 45Q has and will continue to erode due to inflationary pressures. Unlike other energy and industrial tax credits, 45Q does not adjust for inflation until 2027, using a base index year of 2025. Since the 2022 enhancement of the credit, inflation has already consumed more than half of the increased value. Congress must act swiftly to preserve 45Q’s value proposition as initially conceived by bipartisan lawmakers, ensuring that projects in the development pipeline advance to construction and that carbon capture technologies expand across emitting sectors.  

The study’s findings reinforce Coalition recommendations contained in the 2025 Federal Policy Blueprint:  

• Adjust the 45Q inflation index to reflect a 2021 base year. 

• Increase credit levels for point-source capture projects. 

• There is currently a proposal in Congress to increase the tax credit to $120 per metric ton.   

These changes are key to bolstering the potential of the 45Q tax credit, an already successful market signal for the deployment of carbon capture technologies. A strong 45Q tax credit is vital to sustaining momentum toward the commercial deployment of carbon management technology in the US.  

Modifying 45Q isn’t about fixing a failed policy; it’s about ensuring a successful policy keeps pace with evolving economic realities.  

Without strengthening 45Q, rising project costs risk undercutting US leadership in carbon management innovation and industrial decarbonization, along with the hundreds of thousands of high-paying American jobs these projects support. As negotiations on tax policy continue to advance in Congress, the Coalition looks forward to sharing this analysis and its findings with lawmakers and further engaging in efforts to ensure the continued success of the 45Q tax credit and a strong carbon management industry. 

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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.