Inflation Reduction Act of 2022 Makes Monumental Enhancements to the Foundational 45Q Tax Credit
July 28, 2022 | Legislation
The following statement can be attributed to Carbon Capture Coalition External Affairs Manager Madelyn Morrison:
“On Wednesday, Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) announced an agreement on budget reconciliation legislation—the Inflation Reduction Act of 2022—that includes $369B in climate and energy spending along with $300B in deficit reduction, among other things. If enacted, together with the historic investments made in the Bipartisan Infrastructure Law, this package would provide the most transformative and far-reaching policy support in the world for the economywide deployment of carbon management technologies.
“The Inflation Reduction Act rightfully recognizes carbon management’s vital role in reaching midcentury climate targets with its monumental enhancements to this suite of technologies foundational policy, the federal Section 45Q tax credit. The bill includes all of the Carbon Capture Coalition’s top legislative priorities for the 117th Congress. Under the bill’s provisions, any carbon capture, direct air capture or carbon utilization project beginning construction before January 1, 2033 will qualify for the federal 45Q tax credit. Additionally, project developers will have the option to access direct pay for the full value of the tax credit for the first 5 years of a project, once the carbon capture equipment has been placed in service with the option for direct pay fully phasing out for the remaining 7 years of the credit. Nonprofit organizations, cooperatives, and municipal utilities, however, have the option of direct pay for the full 12 years of the lifetime of the credit. Furthermore, the legislation significantly boosts credit values to accelerate project deployment and emissions reductions in key sectors, increasing the value of 45Q for industrial facilities and power plants that capture their carbon emissions to $85 per metric ton for CO2 stored in secure geologic formations, $60 per ton for the beneficial utilization of captured carbon emissions and $60 per ton for CO2 stored in oil and gas fields.
“In addition, the bill also includes increased credit values for direct air capture technologies at $180 per metric ton for those projects seeking to securely store captured CO2 in secure geologic formations, $130 per ton for carbon utilization and $130 per metric ton for CO2 stored in oil and gas fields. The bill also takes a major step forward in expanding project eligibility for industry, electric power, and direct air capture projects by significantly lowering the annual CO2 capture thresholds for the 45Q program. This change will significantly expand access to the incentive for a wider range of carbon management technologies and applications, spurring further innovation and emissions reductions across multiple industries.
“This legislation, coupled with the groundbreaking carbon management provisions included in the bipartisan infrastructure law, could deliver an estimated 13-fold increase in deployment of carbon management technologies and between 210 and 250 million metric tons of annual emissions reductions by 2035. The Inflation Reduction Act makes an essential down payment on deployment to meet midcentury emissions reduction targets, providing environmental and other benefits to communities, preserving and creating jobs that pay family-sustaining wages, and safeguarding the long-term viability of America’s domestic industries.
“As the package moves forward, Congress must seize the opportunity to build upon the success of the Bipartisan Infrastructure Law by promptly enacting these pending improvements to the 45Q tax credit to help deploy carbon capture, direct air capture and carbon utilization technologies at climate scale. We cannot afford to delay economywide commercial deployment of carbon management technologies and infrastructure if midcentury global temperature targets are to remain within reach.”
Convened by the Great Plains Institute, the Carbon Capture Coalition is a nonpartisan collaboration of more than 90 companies, unions, conservation and environmental policy organizations, building federal policy support to enable economywide, commercial scale deployment of carbon management technologies. This includes carbon capture, removal, transport, utilization, and storage from industrial facilities, power plants, and ambient air.