House Ways and Means Preserves 45Q’s Key Elements in Budget Reconciliation Tax Title

The following statement can be attributed to Madelyn Morrison, director of government affairs for the Carbon Capture Coalition on today’s release of the final draft legislative text and substitute amendment by the House Ways and Means Committee (which has jurisdiction over tax policy):

“The Carbon Capture Coalition is pleased to see that the House Ways and Means Committee’s tax title for the broader budget reconciliation package retains the most recent enhancements made to the federal Section 45Q tax credit, ensuring it remains a strong market signal for the deployment of carbon management technologies across the American economy.

“45Q has been a lynchpin for the deployment of carbon management technologies in the US since it was restructured and made more widely available in 2018. Since then, it continues to demonstrate its utility and effectiveness to American businesses. It’s clear that 45Q is good policy and is working as Congress intended: driving significant investment in carbon capture technologies across the country and in a wide array of sectors.

“However, the broader tax title makes significant changes to other portions of the clean energy and industrial tax code that have a substantial impact on an entity’s ability to effectively claim and monetize the credit. This includes phasing out the mechanism for project developers to sell or transfer credits to other entities with greater tax liability if a facility has not begun construction within two years following the enactment of the legislation. In traditional tax equity markets, carbon management projects often face a larger ‘haircut’ of the value of the credit when compared to other energy projects for a host of reasons including the complexity of project deployment, perceived investor risk, and limited investor familiarity with the technology, to name a few. Transferability has proven to be an essential tool for many carbon management project developers who lack the tax liability to monetize the credits themselves—increasing the universe of potential investors and allowing project developers to fully realize the full benefits of the credit.

“And while we are heartened to see the preservation of impactful, widely supported 45Q provisions, the Coalition continues to sound the alarm about the damaging effect inflationary pressures have had on driving up the cost of deployment. Unfortunately, as it stands under current law, the value of 45Q has and will continue to erode due to inflationary pressures as the tax credit 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.

“As Congress continues to negotiate the details of the broader package, the Coalition looks forward to working with lawmakers to ensure 45Q keeps pace with evolving economic realities, underpinning the continued success of the 45Q tax credit and the American carbon management industry.”

###

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.